A product is only profitable once its contribution margin — the selling price minus product cost, shipping, marketplace or payment fees, and the ad cost it takes to sell one unit — is comfortably positive. Many healthy e-commerce SKUs run a 20–30%+ contribution margin; anything near zero is selling volume with no profit.
Contribution margin, not gross margin
Gross margin (price minus product cost) looks great and lies. Real per-unit profit is contribution margin: price − COGS − inbound freight − pick/pack/shipping − marketplace or processing fees − the ad spend it takes to sell one unit. That last piece is what quietly turns a 'profitable' product into a break-even one.
Fold advertising into the unit
If it costs $8 in ads to sell one unit, that $8 is a cost of that sale, full stop. Divide your ad spend by units sold to get ad cost per unit, then subtract it like any other cost. A SKU with a $12 gross margin and a $10 blended ad cost is barely breaking even.
Amazon and marketplace fees add up fast
Referral fees, FBA fulfillment, storage, and returns can take 30–40% of the sale price before you've paid for the product. Build every one of those into the SKU so your winners and losers are obvious — and you stop scaling ads on a product that loses money per order.
Run your own numbers
Enter price, COGS, shipping, fees, and ad cost and the analyzer returns true contribution margin per SKU, so you scale the products that actually make money.
Open the free SKU Profit Analyzer →
Frequently asked questions
What contribution margin should an e-commerce product have?
Many healthy SKUs run 20–30%+ contribution margin after all variable costs including ads. Thin-margin items can work at high volume, but they leave no cushion for returns, fee hikes, or rising ad costs.
Should ad spend count against a single product?
Yes. Divide the ad spend that drove those sales by units sold to get ad cost per unit, then subtract it. A product that's profitable before ads and unprofitable after is a very common — and expensive — blind spot.
Why isn't gross margin enough?
Gross margin ignores fulfillment, marketplace fees, returns, and advertising. Contribution margin includes every variable cost of selling one more unit, which is the number that tells you whether scaling makes or loses money.