How to Calculate Dropshipping Profit Properly (With Every Fee Included)

To calculate dropshipping profit properly, take what the buyer pays, remove any VAT you owe, then subtract the product cost, supplier shipping, marketplace and payment fees, ad spend, currency conversion costs and an allowance for returns. What is left is your real profit per order. A dropshipping profit calculator does this in seconds, but it helps to understand each line first so you know which numbers to question.

Why "sale price minus product price" is not your profit

Most new sellers start with a simple sum: "I buy it for £5 and sell it for £15, so I make £10." That number is your gross margin before costs, and it is usually far from the money that ends up in your bank account.

Between the sale and the payout, several things take a slice:

• The marketplace takes a commission, often a percentage of the total the buyer pays (sometimes including postage), and sometimes a fixed fee per order as well.
• Payment processing may be bundled into the marketplace fee or charged separately.
• Advertising such as promoted listings or sponsored ads is usually charged as a percentage of the sale or per click.
• Currency conversion applies when you pay your supplier in US dollars or euros with a UK card.
• Returns and refunds cost you money even when they are rare, so you need to budget for them on every order.
• VAT becomes part of the picture once you are VAT registered, because part of the sale price belongs to HMRC.
• VAT on fees matters if you are not VAT registered, because you cannot reclaim the VAT that platforms may add to their fees.

Leave any one of these out and a product that looks profitable can quietly lose money.

The full dropshipping profit formula

Here is a version you can use for any marketplace:

1. Gross = selling price + any postage you charge the buyer
2. Net revenue = gross minus output VAT (only if you are VAT registered)
3. Fees = marketplace commission + fixed order fee + listing fee + payment fees
4. Ads = gross × your ad rate
5. Product cost = supplier price + supplier shipping + currency conversion fee + other costs per order (packaging inserts, app subscriptions spread per order)
6. Returns allowance = net revenue × the share of revenue you expect to lose to refunds
7. Profit = net revenue − fees − ads − product cost − returns allowance

From there you can work out your margin (profit ÷ net revenue) and your return on investment (profit ÷ product cost). Both are useful: margin tells you how much room you have for discounts and ad spend, and ROI tells you how hard your money is working.

A worked example with simple numbers

Say you find a phone case on AliExpress for £3.20, with £1.80 shipping to your UK customer. You plan to list it on a marketplace for £14.99 with free postage. All the fee rates below are hypothetical example figures, not any platform's real rates.

That looks healthy at around 40% of the sale price. Now consider two changes:

• If you are VAT registered and £14.99 is your VAT-inclusive price, £2.50 of it is output VAT (£14.99 ÷ 6). Profit drops to roughly £3.59 before any input VAT you may be able to reclaim. VAT on imported low-value goods has its own rules, which we cover in VAT for UK dropshippers.
• If you double your ad rate to 10% to win more visibility, that is another £0.75 gone.

Put both together and £6.09 becomes under £3. Nothing about the product changed, only the costs you counted.

Step by step: checking a product before you list it

Use this routine for every product idea:

1. Get the true supplier cost. Include shipping to the UK for the option you will actually use, not the cheapest one shown.
2. Pick your selling price and postage policy. Decide whether you will offer free postage (and build it into the price) or charge it separately.
3. Look up the current fees for your category on the marketplace's own fee page. Fees vary by category, account type and promotions, and they change.
4. Set an ad rate you can live with. If you have no data yet, use a cautious estimate. Our guide on how much to spend on ads per sale explains how to choose one.
5. Add a returns allowance. Even a small percentage keeps your numbers honest.
6. Switch VAT on or off depending on whether you are registered.
7. Check the margin and break-even price. If the price only just clears break-even, a single return or a fee change wipes out the profit.

Using a dropshipping profit calculator

Doing this by hand for four marketplaces gets tedious. Our free dropshipping profit calculator lets you paste an AliExpress product link (or type the supplier price), then shows profit side by side for eBay, Amazon, TikTok Shop and Etsy. It includes:

• marketplace commission, fixed and payment fees
• your ad rate, with per-platform overrides
• currency conversion and other per-order costs
• a returns allowance
• a VAT-registered switch
• margin, ROI, break-even price and a suggested price for your target margin

The fee rates it uses are estimates, so always compare them with each platform's official fee page before you commit to a price.

A word on marketplace rules: Amazon requires you to be the seller of record and does not allow you to buy from another retailer and have them ship straight to your customer, and Etsy does not allow most resold items. A positive number in a calculator does not mean a sales model is allowed, so read each marketplace's current policies first.

Common mistakes that hide losses

• Counting fees on the item price only when the marketplace charges commission on the total including postage.
• Forgetting currency fees because the supplier price is shown in pounds while your card is charged in dollars.
• Ignoring returns because you have not had one yet.
• Using last year's fee rates. Recheck them regularly.
• Treating turnover as profit when planning, which matters for VAT because the registration threshold is based on taxable turnover, not profit.

Frequently asked questions

What is a good profit margin for dropshipping?

There is no single right figure, because it depends on your ad costs, return rates and product type. What matters is that your margin leaves enough room for advertising, the occasional refund and fee changes, and still pays you for your time.

Should I include my own time in the calculation?

It is worth tracking separately. The per-order profit tells you whether a product works; dividing your total monthly profit by the hours you spend tells you whether the business is worth running.

Do I need to include VAT if I am not registered?

You do not charge VAT on your sales, but you may still pay VAT on platform fees and ad charges that you cannot reclaim, so include it as a cost. For your own situation, a qualified accountant can confirm what applies to you.

How often should I recalculate?

Whenever a supplier price, shipping option, marketplace fee or ad rate changes, and as a routine check every few months for your best sellers.

If you would like help setting up or running your marketplace shops once the numbers work, take a look at our ecommerce and marketplace services.