"The product costs 200 EGP and I sell it for 500, so I make 300 on every piece." This sentence is why many online stores lose money. The real profit only shows once you subtract everything you pay until the product reaches a customer who received it and paid for it.
The costs most merchants forget
| Cost | Why it gets forgotten |
|---|---|
| Shipping | Paid on every shipped order, even refused ones |
| Packaging | A small amount, but it repeats with every order |
| Online payment fees | A percentage of the price deducted from every transaction |
| Ads | A monthly expense that isn't tied to each order |
| Refused orders | Shipping paid with no revenue at all |
The complete formula
Calculate your monthly profit like this:
Delivered orders = number of orders × (1 - refusal rate)
Revenue = delivered orders × selling price
Costs = (delivered orders × product cost)
+ (all shipped orders × (shipping + packaging))
+ (revenue × payment fee rate)
+ ad budget
Net profit = revenue - costs
Profit margin = net profit ÷ revenue
Notice that the product cost is counted on delivered orders only, because a refused product returns to your stock, while shipping and packaging are counted on all shipped orders.
A worked example
A store selling one product with these monthly numbers:
- Selling price: 500 EGP
- Product cost: 200 EGP
- Shipping: 70 EGP, and packaging: 10 EGP
- Cash on delivery (no payment fees)
- Ads: 5,000 EGP a month
- Orders: 150, and refusal rate: 15%
The calculation:
- Delivered orders = 150 × 0.85 = about 127.5 orders.
- Revenue = 127.5 × 500 = 63,750 EGP.
- Product cost = 127.5 × 200 = 25,500 EGP.
- Shipping and packaging = 150 × 80 = 12,000 EGP.
- Ads = 5,000 EGP.
- Total costs = 42,500 EGP.
- Net profit = 21,250 EGP, and the profit margin is about 33%.
So the real profit per delivered order is about 167 EGP, not 300 as it seemed. Try your own numbers in the online store profit calculator.
What happens if the refusal rate goes up?
With the same example, if the refusal rate rises from 15% to 30%:
- Delivered orders drop to 105.
- Revenue drops to 52,500 EGP.
- Product cost drops to 21,000 EGP, but shipping and packaging stay at 12,000 EGP.
- Net profit becomes 14,500 EGP.
About a third of the profit is gone because of refusals alone. That is why cutting refused orders with deposits and order confirmation is sometimes worth as much as raising the price.
4 ways to price
Cost-based pricing
You add a fixed profit percentage to the full cost of the order. Simple and safe, but it ignores what the market will pay.
Market-based pricing
You look at competitors' prices for the same product and pick your position: cheaper, the same, or more expensive with more value (better packaging, faster delivery, a guarantee). Don't start a price war you can't afford.
Value-based pricing
If your product is distinctive (handmade, a unique design, higher quality), price it by its value to the customer, and explain that value clearly on the product page.
Bundles
Selling two or three products together at a better price raises the average order value and spreads the shipping cost over more than one product, so your margin goes up.
When should you offer free delivery?
Free delivery is attractive, but it isn't free for you. Offer it with a smart condition:
- Above a certain amount, to encourage the customer to add another product.
- On high-priced products, where the margin can absorb the shipping cost.
- In limited-time offers, not permanently.
The bottom line
Before you set any price, calculate the profit per delivered order after shipping, ads and returns. The right price is the one that keeps you profitable even in the month when the refusal rate rises or the ad budget grows.
