How to calculate your real profit on Shopify
Your Shopify dashboard shows sales. It doesn't show what you kept after paying for the products, the shipping and the payment fees. Here's how to work out that number, and what to watch for.
The formula
Net profit = sales − product costs − shipping − payment fees − ad spend
Each part needs a little care.
Sales
Use what customers actually paid you:
- leave out sales tax, because it was never yours;
- include shipping the customer paid, because it came to you;
- take off refunds and cancellations, on the day they happened;
- use the total after discounts. Don't subtract a discount a second time.
Product costs
What you paid for the units you sold, in the period you sold them. In Shopify, that's the Cost per item on each product variant. If a returned item goes back on the shelf, its cost comes back too.
Shipping
What you paid to ship orders out. If you buy labels through Shopify, that's the label cost. If you ship another way, use your average cost per order.
Payment fees
What your payment provider took on each sale. See our guide to Shopify transaction fees for the rates.
Ad spend
What you spent on ads in the period.
A worked example
| Amount | |
|---|---|
| Sales (after refunds, before tax) | $8,000 |
| Product costs | −$3,200 |
| Shipping | −$900 |
| Payment fees | −$280 |
| Ad spend | −$1,200 |
| Net profit | $2,420 |
The three mistakes that make profit look better than it is
- Missing product costs. If half your products have no cost entered, your profit only reflects the half that do. Fill in every variant.
- Forgetting shipping. It's often the second-biggest cost after the products themselves.
- Counting tax as revenue. It inflates every number, and it isn't yours to keep.
Ad spend belongs in it
Ads are a cost of making those sales, so they come off profit like any other cost. Return on ad spend (sales ÷ ad spend) is still worth watching on its own, because it tells you whether the ads pay for themselves.
Skip the spreadsheet
Nesvo is a free Shopify app that does all of this for you. It syncs your orders, refunds and product costs from Shopify, takes out shipping, payment fees and ad spend, and shows your net profit and gross margin for any period. If costs are missing, it tells you how many rather than guessing.