Knowing your profit per unit sold is the foundation of product-based business decisions. It tells you whether a product is worth selling at its current price, how many units you need to move to hit your income goals, and whether a new sales channel makes financial sense.
The Basic Formula
Profit per unit = Selling price − Cost per unit sold
The challenge is defining "cost per unit sold" correctly. Many sellers undercount their costs, leading to profit figures that look healthy on paper but disappear in practice.
What Goes Into Cost Per Unit
A thorough cost-per-unit calculation includes:
Cost of goods sold (COGS)
- Purchase price or manufacturing cost of the item
- Packaging materials
- Inbound shipping to your warehouse or home
Variable selling costs (costs you pay on every sale)
- Outbound shipping to the customer
- Platform fees (eBay FVF, Amazon referral fee, Etsy transaction fee, PayPal/Stripe processing fee)
- FBA fulfillment fees (if applicable)
- Sales commissions or affiliate payouts
Returns reserve (optional but realistic)
- If 3% of units are returned, allocate a per-unit reserve based on your return handling cost
Optional: allocated fixed cost For a full picture, divide your monthly fixed costs (storage, software, labor, advertising) by expected unit volume to estimate fixed cost per unit.
Example Calculation
A product sold on Amazon:
| Item | Amount |
|---|---|
| Selling price | $35.00 |
| COGS (product + packaging) | $8.50 |
| Inbound shipping allocation | $0.80 |
| Amazon referral fee (15%) | $5.25 |
| FBA fulfillment fee | $3.50 |
| Total cost | $18.05 |
| Profit per unit | $16.95 |
| Margin | 48.4% |
If you then allocate $2.50/unit for PPC advertising, the net profit drops to $14.45 per unit (41.3% margin).
Profit Per Unit vs. Profit Margin
Profit per unit is an absolute dollar figure. Profit margin is a percentage. Both are useful for different purposes.
Use profit per unit when:
- Comparing absolute profitability across products with different price points
- Calculating how many units you need to sell to hit a revenue target
- Evaluating whether to enter a new sales channel with additional per-unit fees
Use profit margin when:
- Comparing products with different prices
- Benchmarking against industry standards
- Communicating to investors or partners
Minimum Acceptable Margin by Channel
As a rough guide, net margin targets (after all fees but before fixed cost allocation) by channel:
- Amazon FBA: 30% or higher is commonly targeted; below 20% leaves little room for advertising
- Shopify / own website: Can accept lower margin since platform fees are lower, but need to account for marketing costs
- Etsy: 25–40% after fees; platform drives traffic so marketing cost is lower
- Wholesale: 10–20% margin (lower because you sell in bulk at below-retail prices)
These are starting points, not rules. The right margin depends on your fixed costs, volume, and competitive position.
The Unit Economics Mindset
Profitable businesses think in unit economics: what does each sale actually return? When you know your profit per unit, you can answer questions like:
- Can I profitably run a 15% off sale? (Does the reduced profit per unit exceed zero?)
- Should I list on a new marketplace that charges 5% higher fees?
- At what volume does this product pay back my initial inventory investment?
Build a simple spreadsheet with your full cost breakdown before sourcing any product. Update it whenever your costs change.