The previous article explained why net margin matters more than the ROAS on your dashboard. This one shows you exactly how to calculate it, on your real products. Not estimates, not round numbers. Invoices, receipts, courier contracts.
Thirty minutes if the data is close. An hour if you have to dig through emails to find your courier contract. Either way, worth it. You come out with a number you can defend anywhere.
Step 1. Five products, not picked at random
You're not doing the whole catalog today. You pick five that tell the full story. Three of your best-sellers from the last 90 days. One you instinctively think has strong margin (often an accessory or premium SKU). One that sells modestly but stays in the catalog because „it pairs with the others".
Five is enough to see where the real money comes from and where it quietly leaks.
Step 2. The eight-column table
Open Google Sheets or Excel. Header row, these eight columns. One product per row.
| Column | What goes in, exactly |
|---|---|
| 1. Product | Short name, so you know what you're reading later |
| 2. Sale price ex-VAT | If you're VAT registered and the site shows VAT-inclusive, divide by 1.19 |
| 3. Product cost | Exactly what you pay the supplier on the last invoice, ex-VAT |
| 4. Shipping and courier | Courier cost to customer, minus what you charge for shipping |
| 5. Packaging | Box, bubble wrap, labels, tape. Per order, not per month |
| 6. Returns | Estimated percentage (e.g. 4%) × sale price. Don't skip, returned stock often can't be resold |
| 7. Platform fee | Only if you sell on eMAG, Amazon, etc. Otherwise zero |
| 8. Payment processor fee | Stripe, Netopia, PayU, 1.9 to 3% depending on contract |
Step 3. The formula, in one column
Column 9, Net margin. Simple formula: (Sale price minus sum of columns 3 to 8) divided by sale price, multiplied by 100. Excel: =(B2-SUM(C2:H2))/B2*100. Drag it down across all five products.
The first numbers that come out are almost always lower than you assumed. That's normal. Most founders have a mental mark-up (the one they negotiate with suppliers) and confuse it with margin. They're not the same thing.
Example across five real categories
Here's what the table looks like for five different businesses, averages I see often when I open actual accounts.
| Product category | Sale price | Total variable cost | Net margin |
|---|---|---|---|
| D2C fashion dress | €80 | €34 | 57.5% |
| Mid-range Bluetooth headphones | €150 | €95 | 36.7% |
| Car accessory | €45 | €18 | 60.0% |
| Food supplements | €25 | €16 | 36.0% |
| Electric scooter | €500 | €279 | 44.2% |
There's a pattern. Fashion and small accessories fly up to 55-60%. They scale easily on ads because they absorb the acquisition cost without drama. Electronics and supplements sit at 36%. They can work, but they need solid volume and AOV boosted through bundles. The scooter at 44% sits in between. Works, but only if average order value is high. Under 300 lei AOV, the same business becomes risky.
Step 4. Weighted average, the real company margin
This is where half the founders lose the good number. Business margin isn't the arithmetic average of product margins. Sell 100 dresses at 57% and 10 headphones at 36%, your average isn't 46.5%. Your volume-weighted margin is 55.1%. But flip the volumes, sell 10 dresses and 100 headphones, your real margin is 37.9%. Same products. Same per-product margin. Two completely different businesses.
In Excel, column 10 is Sales, you fill in units sold per product over the last month. Column 11, Margin × Sales. At the bottom, divide the sum of column 11 by the sum of column 10. That's the number. Weighted net margin. That's what you work with.
Step 5. What to do with the number
You have your weighted margin. Now you look at it and ask yourself which tier you're in.
- 1Over 30%. You can safely work with a commission agency at 5-10%. There's room left after the commission, after the ads, after operational overhead.
- 2Between 20 and 30%. Scaling on 5-10% commission, with care on mixed products. You don't put ads on the whole catalog, only on items with individual margin over 30%.
- 3Under 20%. You don't start aggressive scaling, no matter what any agency promises. You either raise price, renegotiate supplier cost, or rethink the category. Otherwise every euro into ads is a euro you lose with a smile.
Four mistakes that lie about your margin by 10 points
- You forget VAT. If you're VAT registered and you take the sale price as displayed, the margin is fiction. Strip VAT (divide by 1.19 in Romania) before any calculation. I've seen businesses convinced they were at 35% margin actually running at 18%.
- You don't include your own salary in fixed costs at break-even. Not a product margin issue, agreed, but it defines total revenue you need to pull to come out ahead. If you work 50 hours a week and don't price your time, you're an employee at your own company, not an owner.
- You ignore returns. A 5% return rate isn't minus 5% in sales. It's the product that often comes back with torn packaging, visible wear, or missing pieces. 80-100% loss per unit, plus courier both ways. You put 5-7% cost on returns in column 6, not 2%.
- You calculate margin at full price when 40% of sales land during -20% or -30% promotions. The correct number is margin at real average sale price, not list price. Shopify or WooCommerce gives you AOV over the last 90 days. That's your starting point, not the catalog price.