A dropshipping product can show a healthy gross margin and still lose money, because ads, payment fees, and refunds come out afterwards. The full per-order calculation below catches all of them before you scale a product.
How it works
Profit per order = selling price – product cost – shipping you pay – payment fees – platform fees – ad cost per sale – refund allowance. Net margin = profit per order / selling price x 100. Break-even ROAS = selling price / gross profit before ads, where gross profit is price minus product, shipping, and fees. If your actual ROAS is below break-even ROAS, you lose money on each ad-driven sale.
Step by step
- Write down the selling price the customer actually pays, after discounts.
- Subtract product cost and any shipping you pay that the customer does not.
- Subtract payment fees, usually a percentage plus a fixed amount per order.
- Subtract platform or app fees per order.
- Subtract ad cost per sale: total ad spend / number of orders from those ads.
- Subtract a refund allowance: refund rate x average refund cost, then read the profit left.
Worked example
Selling price $39. Product $9, shipping $5, payment fees $1.43, ad cost per sale $14, refund allowance $1.17 (3 percent of $39). Total costs = 9 + 5 + 1.43 + 14 + 1.17 = $30.60. Profit per order = 39 – 30.60 = $8.40. Net margin = 8.40 / 39 = 21.5 percent. Gross profit before ads = 39 – 9 – 5 – 1.43 = $23.57, so break-even ROAS = 39 / 23.57 = 1.65. Any ROAS above 1.65 makes money before refunds and fixed costs.
Common mistakes
- Counting gross margin as profit and ignoring ad cost, which is usually the largest cost.
- Using lifetime ad spend with one week orders, which mismatches the periods.
- Forgetting refund and chargeback costs, which hit after the sale looks profitable.
- Pricing below the break-even price, where every extra sale loses more money.
Try it with the free tool
You can follow every step above by hand, but the free tool below does the same calculation instantly. Try your own numbers in it, then check one result by hand so you trust the method as well as the answer. Open the full tool here: open the tool.
Checklist before you finish
- Write down every input number first, with its unit, before you calculate anything.
- Work through the steps in order, and do not skip the unit conversions.
- Check the answer against the worked example above: is it the right size, and does the direction make sense?
- Round only at the end, and keep the unrounded figure for any follow-up calculation.
Practice with your own numbers
Pick three cases of your own and work each one by hand. First, try a simple round-number case you can check mentally. Second, try a realistic case with awkward numbers, the kind you will actually meet. Third, try an edge case, such as a very small or very large input, and confirm the answer still behaves sensibly. If any case gives a surprising result, re-check the units and the formula step by step before you trust it.
If your answer looks wrong
Most errors come from a small set of causes. Check that you used the same units throughout, that you divided where the formula divides and multiplied where it multiplies, and that you applied any percentage as a decimal. Check the order of operations: powers and brackets come before multiplication and division, which come before addition and subtraction. Finally, test the method on the worked example in this guide. If your method reproduces the example answer, the method is right and the inputs deserve a second look.
Quick tips
Find your break-even ROAS before you run ads, and kill any ad set that stays below it after a fair test. Small price rises often help more than more ad spend, because ad cost per sale stays the same while profit per order grows.