Marketing in a Minute – Episode 18 | Ahmed Moaaz
After the cost of the product, shipping, ads and fees: how much remains from a single order? If you do not know this number, scaling enlarges the problem instead of solving it.
What do we mean by what remains of an order’s value?
When you receive an order worth 500 EGP, how much of those five hundred actually stays with you after paying every cost tied to that specific order? This number is the order profit margin, sometimes called the contribution margin, and it is the most honest thing you can know about the economics of every sale.
The question sounds obvious, but most store owners answer it with a guess: “I buy the product for 200 and sell it for 500, so I earn 300.” In truth, those 300 start shrinking immediately under many items that never appear on the supplier’s invoice.
How do you calculate it precisely?
The formula: net order profit = selling price – cost of goods – packaging – shipping – payment fees – returns share – any granted discount.
Let’s apply it to a full example – a product sold for 500 EGP:
- Purchase cost from the supplier: 200 EGP.
- Box, packaging and thank-you card: 15 EGP.
- Shipping you bear or subsidize: 45 EGP.
- Electronic payment gateway fees (about 2.5% plus a fixed fee): 18 EGP.
- Returns share: if 20% of orders come back and a return costs 60 EGP, every order carries an average share of 12 EGP.
Net order profit = 500 – 200 – 15 – 45 – 18 – 12 = 210 EGP, a 42% margin – not the 60% it appeared to be at first glance.
Why is this number the foundation?
Because three major decisions are built directly on it:
- Pricing: you cannot price a new product or grant a discount without knowing what remains after it. A 15% discount on the previous example cuts 75 EGP from a 210 margin, eating a third of your profit at once.
- The advertising break-even point: remember its formula from the ROAS episode: selling price ÷ net order profit. Every wrong calculation here means a red line drawn in the wrong place.
- The decision to stop or push a product: a “fast-selling” product with a weak margin can be worse than a slower-selling, higher-margin one. Big revenue with no margin is expensive busyness.
The royal item: the returns share
The most ignored item, and the most dangerous to the calculation. The correct method: take your return rate or RTO, multiply it by the full cost of a returned order (outbound and return shipping and wasted packaging), and the result is the average each order carries.
Example: a 25% return rate and a returned-order cost of 80 EGP means every shipped order carries 20 hidden EGP on average (or about 27 EGP if you divide the cost over successful orders only). A store shipping a thousand orders a month loses 20,000 EGP a month on this item alone, without seeing it on any invoice.
How do you raise what remains from every order?
- Negotiate the cost of goods: a 5% supplier discount converts entirely into your margin.
- Make the customer share in shipping: a free-shipping minimum raises the average order and covers the cost instead of you eating it alone.
- Reduce returns at their roots: more accurate descriptions, real photos and clear sizes reduce “unexpected” returns, and confirming the order before shipping reduces refusals.
- Review payment fees: sometimes steering customers to a cheaper payment method or negotiating the gateway’s percentage pays off at volume.
- Raise average order value: the same shipping and packaging cost serves a bigger order, so the share of what remains grows automatically.
An example of the power of small improvements
Back to our example with its 210 EGP margin: you negotiated with the supplier and cut the cost by 10 EGP, made shipping free above 600 EGP so the average order rose slightly and its margin improved by 15 EGP, and reduced returns from 25% to 18%, saving another 5.6 EGP on average. The total: about 30.6 extra EGP in every order – raising the margin 15% without selling a single extra unit and without raising prices on customers. Over a thousand orders a month, that means about 30,600 EGP of extra profit in the month from three small operational decisions.
Common mistakes
- Settling for one “overall” margin for the whole store: the average hides losing products funded by winning ones. Calculate the margin for at least your top ten products separately.
- Forgetting discounts: an order with a 20% coupon has a completely different margin from a full-price order, and mixing them in one average misleads campaign decisions.
- Updating the number once in a lifetime: supplier and shipping prices move constantly; review your calculation at least every quarter.
Start now with three steps
You do not need a complicated accounting system to begin:
- Pick your best-selling product and write its selling price at the top of a sheet.
- List beneath it every cost that touches this order: purchase, packaging, shipping, payment fees, and the average returns share calculated from last month’s numbers.
- Subtract and look at the result honestly: is the number comfortable? Can it absorb a promotional discount? Does it beat the customer acquisition cost from the CAC episode?
Repeat the exercise with your second and third products, and within half an hour you will have a picture of your store’s economics more accurate than most of your competitors hold – and you will know immediately where your profit is leaking and where improvement effort pays off first.
Summary
Order value is a shiny marketing number; what remains of it is the survival number. Calculate net order profit for every main product with all its items including the returns share, and use it in pricing, discounts and advertising limits. Stores that know this number precisely can compete hard because they know exactly how much room they have to maneuver; those that do not stumble between discounts eating their margin and campaigns inflating their losses.
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