What does a per-order example look like?
| Line | Amount |
|---|---|
| Price charged, $40 plus $5 shipping | $45.00 |
| Supplier product cost | - $14.00 |
| Supplier shipping | - $6.00 |
| Gross profit | $25.00, 55.6% |
| Payment processing, about 2.9% plus $0.30 | - $1.61 |
| Store plan and apps, per order | - $1.00 |
| Advertising per order | - $12.00 |
| Refunds and chargebacks allowance, 5% | - $2.25 |
| True profit per order | $8.14, 18.1% |
Before tax and before your own time. If ad cost per order rises to $20, the order loses money.
How do you track it?
Record supplier charges per order
Product and shipping, as cost of goods sold.
Record fees from payout reports
Payment processing and chargeback fees, not netted against sales.
Divide ad spend by orders
Per campaign or product, each week or month.
Track refunds and chargebacks
Including those where the supplier does not refund you.
Review margin by product
Drop or reprice products that do not cover their ads.
A simple spreadsheet with one row per product, showing price, supplier cost, shipping, fees, ad cost per order and refund rate, is enough for most stores. Update it monthly from the store, supplier and ad accounts.
What is your breakeven ad return?
Before ads, the example order leaves $20.14 after product, shipping, fees, apps and the refund allowance, which is 44.8% of the $45 price. Ads can take up to that amount before the order loses money. Breakeven return on ad spend is the price divided by that amount: $45 รท $20.14, or about 2.23. Campaigns returning less than $2.23 in sales for each $1 of ads lose money on this product; well above that, they add profit.
What about refunds the supplier will not cover?
When a customer is refunded for a late or damaged item but the supplier does not refund you, you lose both the sale and the product cost. Track those cases separately; a supplier with frequent unrecovered refunds can wipe out the margin of an otherwise profitable product.
How does this fit with the books?
The monthly profit and loss should show the same picture: sales, discounts and refunds; cost of goods sold from supplier charges; then fees, ads and software. If the books show profit but the bank does not, look for unrecorded supplier charges, ad spend on personal cards, or sales tax collected but not set aside. See Shopify bookkeeping and how to read a profit and loss statement.
Why do timing differences confuse results?
Ad platforms bill as you spend, suppliers charge when you place the order, and payouts arrive days later. Month-end results can swing even when the business is steady. Accrual-style tracking of ads and supplier costs by order date gives a truer monthly picture. See cash vs accrual accounting.
Reviewing results over a full quarter, rather than a single month, smooths these swings.
How is dropshipping profit taxed?
Supplier charges are cost of goods sold, fees and ads are expenses, and the profit is business income with self-employment tax for sole owners. Sales tax collected on your own store is a liability, not income. See dropshipping taxes.
Not sure if your store makes money?
We reconcile your store, supplier and ad accounts monthly and give you a true profit and loss statement and margin by product.
Questions people ask
How do I calculate dropshipping profit?
Subtract product and supplier shipping, payment fees, platform and app costs, ad spend per order, and refunds and chargebacks from what the customer paid.
What is a good dropshipping profit margin?
It varies, but after ads and refunds many stores aim for 15% to 30% of revenue. Gross margin alone is misleading.
Are supplier costs cost of goods sold?
Yes. The supplier's charge for product and shipping on each order is cost of goods sold.
Why does my store show profit but no money in the bank?
Often because of unrecorded supplier charges, ads paid personally, timing of payouts, or sales tax not set aside.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- IRS Publication 334: Tax Guide for Small Business
- IRS Publication 538: Accounting Periods and Methods
- IRS: About Schedule C (Form 1040)
Rules and fees change. If you are reading this long after October 1, 2026, confirm the figures with the source before you rely on them.
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This guide is general information. It is not tax or legal advice for your situation.