Understanding Profitability and How to Calculate Your Margin

When you are choosing your very first product to sell online, it’s easy to get carried away by how exciting it all feels. But before you click “list product” on a marketplace platform, there’s one thing you absolutely need to understand: profitability.

Profitability simply means how much money you actually keep after every cost has been paid. It’s not just the difference between what you buy the product for and what you sell it for. There are many hidden expenses in between, and if you don’t plan for them, you could end up working really hard and making little to no money.

Let’s walk through this step by step.

Step 1: Start with your selling price

The first question is: what price can you realistically sell your product for? This usually comes from looking at what other sellers are charging on the marketplace and deciding where your product fits. Think of this as your “ceiling” – your revenue per item.

Step 2: Count all of your costs

Now, let’s break down what you’ll actually spend on each unit:

• The cost of buying or manufacturing the product.

• Marketplace fees (like referral or transaction fees).

• Payment processing charges.

• Packaging and shipping.

• Fulfilment or storage fees if you’re using a warehouse or a fulfilment service.

• Returns, replacements, or warranty costs.

• Import duties, customs, and taxes (if applicable).

• A fair share of your overheads, such as subscriptions, software, or even your time.

  
  

It may feel like a long list, but leaving something out can make your profit calculations look much better on paper than they really are in practice.

Step 3: Work out your profit margin

Once you know the selling price and the total of all your costs, the difference is your profit. To understand if it’s healthy, you need to see what percentage of the selling price is left after costs.

For example, if you sell something for three hundred rand and, after all costs, you keep one hundred and twenty-five rand, that means your margin is just over forty percent. This is a healthy starting point, but remember you still need to budget for marketing.

Step 4: Plan for marketing spend

Advertising is not optional when selling online. Whether it’s paid search, marketplace ads, or social media campaigns, you’ll need to spend money to bring in sales. A smart approach is to set aside a clear portion of your margin for marketing.

Using the example above, if you dedicate about a third of your profit to ads, that leaves you with around ninety rand per item in actual earnings. That’s your real margin after everything.

Step 5: Leave yourself a buffer

Costs can change. Shipping can increase, marketplaces can raise their fees, or customers may return more products than expected. Always build in a buffer so you don’t get caught off guard.

Final Thoughts

Profitability is not just about making money on paper — it’s about building a sustainable business that allows you to cover costs, pay for marketing, and still have enough left over to reinvest or pay yourself. By carefully working through your numbers and being realistic about what each sale actually brings in, you’ll set yourself up for success right from the start. And if you need some experience to guide you through the process, book an hour consultation with Dylan Twaddle. He'd be happy to walk you through it, and you can have peace of mind, having covered all your bases, and ensure there are no unwanted surprises.