E-Commerce Unit Economics: Beyond the Sale Price
The real cost of selling one unit online — shipping, processing fees, and returns all eat into a margin that looks fine until you count everything.
Why Revenue Isn't the Number That Matters
It's easy to look at a product that costs $8 to make and sells for $25 and assume there's a healthy 68% margin in it. For a physical e-commerce product, that math is almost always wrong — because the cost of goods is only one piece of what it actually costs to get that order into a customer's hands and keep it there.
The Real Cost Per Order
Costs that eat into the sticker-price margin on a typical online order
| What it is | Typical range | |
|---|---|---|
| Cost of goods (COGS) | Materials + manufacturing/sourcing cost per unit | Varies by product |
| Payment processing | Fee charged by your payment processor per transaction | ~2.9% + $0.30 per transaction is a common baseline |
| Shipping (outbound) | What you pay to ship the order, whether or not you charge the customer for it | Varies widely by weight/size/carrier |
| Packaging | Box, mailer, inserts, tape | Often overlooked, but real and recurring |
| Returns / refunds | Lost product cost, return shipping, and restocking labor on returned orders | Apparel commonly sees 20–30% return rates — very different from most other categories |
| Ad spend per order | If the order came from a paid channel, its share of what you spent to acquire it | Highly variable — this is your CAC, allocated per order |
Add these up and a product with a healthy-looking 68% gross margin on paper can easily land at a 15–25% contribution margin once shipping, processing, and a realistic return rate are counted — still potentially fine, but a very different number to price and plan against.
Run the Numbers
Use your actual unit cost and a realistic target margin — including everything above, not just materials — to see what your price actually needs to be.
Cost-Plus Price Calculator
Enter your full landed cost per unit (materials + packaging + average shipping + payment processing), not just materials cost, to see the price that actually hits your target margin.
Suggested price
$42
Profit per unit
$17
Equivalent markup
66.7%
Not the same number as margin — see below
Return Rate: The Hidden Killer
Returns cost more than the refund
A returned order doesn't just cost you the refund — you also lose the original outbound shipping (rarely recovered), often pay return shipping, and may not be able to resell the item at full price, or at all. A 20% return rate isn't "losing 20% of revenue" — it's closer to losing 20% of revenue plus a chunk of shipping and processing costs on top, with no offsetting sale.
Red Flags in Your Unit Economics
Worth checking before scaling ad spend
0/4Key Terms
Key Terms
- COGS (Cost of goods sold)
- The direct cost of producing or sourcing the product itself — materials and manufacturing, not shipping or marketing.
- Contribution margin
- What's left from a sale after ALL variable costs of that specific order — COGS, shipping, processing, and an allocated share of returns — not just materials cost.
- Landed cost
- The full cost to get one unit into a sellable, shipped state — materials, packaging, and shipping combined.
- Return rate
- The percentage of orders that come back as a return, which varies enormously by product category.
Discussion & questions
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