How to Calculate Dropshipping Profit (The Real Formula)

Most new dropshippers calculate profit as Selling Price − Product Cost. That formula misses 4 hidden costs that can turn a “profitable” product into a money loser.

1. Product Cost (Supplier Price)

This is what you pay your supplier (AliExpress, CJ Dropshipping, etc.) for the product. Always include any variant upgrades — if you're selling a “Pro” version, use that cost.

2. Shipping Cost

E-packet shipping typically costs $2–$8 per unit depending on weight and destination. Don't forget: if you offer “free shipping,” this cost comes out of your margin. Pro tip: Source from local warehouses to cut shipping from 15–30 days to 3–7 days and reduce refund rates by up to 40%.

3. Ad Cost (CPA — Cost Per Acquisition)

This is the most underestimated cost. Your ad spend per sale (CPA) depends on your niche, creative quality, and platform. Typical CPAs:

• Facebook/TikTok: $5–$30 per sale
• Google Shopping: $3–$15 per sale
• Influencer: $2–$10 per sale (after initial content cost)

4. Payment Processing Fees

Stripe, PayPal, and Shopify Payments all charge a percentage + fixed fee per transaction. For most US stores: 2.9% + $0.30 per transaction. For stores in the Philippines using Stripe: 2.9% + ₱15. This means on a $30 sale, you lose ~$1.17 to payment fees.

5. Refund Allowance

E-commerce refund rates average 5–10% for dropshipping. With long shipping times, this can hit 15–20%. Budget for it: multiply your selling price by your expected refund rate. A $30 product with a 10% refund rate costs you $3 per sale in refund allowance.

A 13% margin is razor-thin. One bad week of ad performance and you're losing money. Aim for 25%+ net margin to give yourself breathing room.

Break-Even Ad Cost

This is the maximum you can spend on ads per sale and still break even. Calculate it as:

If your break-even ad cost is $5 and your actual CPA is $8, you're losing $3 per sale. This is the #1 reason dropshippers fail — they don't know their break-even before running ads.

Use the Free Calculator

Skip the manual math. Our free dropshipping profit calculator factors in all 5 costs and gives you your net profit, margin, break-even ad cost, and a product score in seconds.