Is this product actually profitable?

Start with one completed order

A product bought for $8 and sold for $30 appears to have a generous markup. That comparison leaves out the cost of getting it to a buyer. Start with a single unit, a single sales channel, and a consistent currency. Separate revenue you keep from sales tax you collect for someone else.

Contribution is revenue minus the costs that vary with selling that order. It helps you decide whether another order improves the business. It is not your final business profit: subscriptions, salaries, financing, and income tax may still need to be covered.

Build a base case from supplier quotes and your actual channel charges. Then create a downside case for discounts, more expensive acquisition, and returns. An attractive base case is not enough if a small change eliminates the margin.

Worked example: the $30 product

Every amount in this example is hypothetical and expressed in USD per order. It assumes one unit per order, no shipping revenue, and a referral fee of 15% of the selling price. Replace every input with your own data; fees can use different calculation bases and vary by category.

The expected returns allowance spreads an estimated loss across all orders. For example, a 5% return rate multiplied by a $20 average unrecovered loss produces a $1 allowance. Include only costs not already counted elsewhere; do not count the full product cost twice.

Separate contribution, overhead, and cash

The example leaves $6.30 per order. At 100 orders a month, that is $630 before fixed costs. If the product carries $150 of monthly overhead, it leaves $480 before financing and income tax. At only 20 orders, the same $150 allocation would exceed its $126 contribution.

Inventory also uses cash before it earns contribution. A positive per-order result does not tell you how much stock you can finance, how quickly it will sell, or when the marketplace will release funds. Record supplier deposits, lead time, settlement timing, and a reserve for returns separately from the margin calculation.

Stress-test the decision before buying

Reduce the selling price by 10% to $27 while holding the other assumptions constant. The assumed referral fee falls to $4.05, but contribution falls to $3.75. That is a $2.55 reduction in contribution from a $3 discount. A promotion can increase sales while reducing the amount available to cover the business.

Alternatively, keep the $30 price and increase advertising from $3 to $5 per order. Contribution becomes $4.30. If returns losses also rise by $1, it becomes $3.30. Write down the minimum contribution you need before deciding whether the product passes.

• Use the actual packed dimensions and weight when estimating fulfillment.
• Include freight, duty, storage, payment processing, and unrecoverable returns where applicable.
• Compare expected contribution with the cash and time tied up in inventory.
• Reconcile the model against settled orders after launch; revise estimates instead of treating them as permanent facts.

Use the worksheet and calculator together

Download the worksheet to record assumptions, evidence, and a downside case. The site’s profit calculator is a quick scenario aid; verify its fields and defaults before using it. If a cost such as returns or a channel-specific charge is not represented, include it separately in your worksheet.

Do not interpret a calculator score as a buying recommendation. Your decision also depends on demand, competition, compliance, supplier reliability, and the amount you can afford to have tied up in stock.