SKU-level ecommerce profit
How to calculate SKU profitability before scaling ads
Revenue and ad-platform ROAS do not show what remains after product cost, shipping, payment fees, refunds, and ads. SKU profitability shows the contribution one product can keep after those variable costs.
What is SKU profitability?
SKU profitability is the contribution remaining from one product sale after the variable costs tied to that sale and its acquisition cost. It helps answer a narrow question: can this product support its current or target advertising cost?
This is not a full-company profit and loss statement. It does not include fixed overhead such as payroll, rent, software subscriptions, income tax, or inventory carrying costs.
SKU profitability formula
1. Selling price after discount: list price x (1 - discount rate).
2. Net selling price: selling price after discount / (1 + included tax or VAT rate), when the customer price includes tax or VAT.
3. Contribution before ads: net selling price - product cost - shipping - packaging - payment fee - refund reserve.
4. Profit after ads: contribution before ads - ad spend per order.
5. Max CPA: contribution before ads when positive; otherwise zero.
6. Break-even ROAS: net selling price / contribution before ads, when contribution before ads is positive.
Payment percentage fees apply to the discounted customer payment amount. A refund reserve is based on net selling price. Keeping those two costs separate helps avoid treating gross revenue as contribution.
Worked SKU profitability example
Suppose a product sells for USD 50 with no discount or included tax. Product cost is USD 18, shipping is USD 6, packaging is USD 1, the payment fee is 2.9% plus USD 0.30, refund reserve is 3%, and ad spend is USD 10 per order.
Contribution before ads: USD 21.75
Profit after ads: USD 11.75
Max CPA: USD 21.75
Break-even ROAS: 2.30x
The example is illustrative. Discounts, tax treatment, product costs, payment fees, shipping, refunds, and ad costs all change the result.
How to use the result
- Scale: actual CPA is comfortably below max CPA and contribution after ads stays positive.
- Watch: actual CPA is close to max CPA, so modest changes in discounts, refunds, or costs can remove the margin.
- Pause: actual CPA is above max CPA and contribution after ads is negative.
- Fix: contribution before ads is already zero or negative, so price, costs, shipping, or refund rate need attention before buying more traffic.
Common SKU profitability mistakes
- Only looking at ROAS. A positive ROAS can still leave negative contribution after variable costs.
- Using list price instead of discounted price. Use the typical selling price you actually collect.
- Omitting small variable costs. Payment fees, refunds, shipping, and packaging compound across orders.
- Using one store average for every product. Products with different costs and refund rates need separate thresholds.
Compare multiple SKUs with the same assumptions
The free calculator is for checking one product. The Excel workbook is for comparing multiple SKUs under shared fee and refund assumptions and reviewing which products to scale, watch, pause, or fix.