The commonly quoted average net margin for dropshipping is 10% to 30%, but those figures come from tool and vendor blogs, not independent datasets, and many are gross margin. Your own net margin per order is (1 - refund rate) x price, minus product cost, shipping, payment fees and ad cost, and you can compute it in a minute.
In the three hypothetical examples below, margin before ads is 24.5% to 45.1%, and after ads at a 3.0 ROAS the net margin runs from a 9% loss to a 12% profit.
For made-to-order products such as printed shirts, the cost stack is different. That case is in How Much Profit Does a Print on Demand Shirt Make?. This article covers stocked goods that a supplier ships to your customer.
How do you calculate dropshipping profit margin?
Define two terms and keep them apart.
- Gross margin is (price - product cost) / price. It ignores shipping, fees, refunds and ads, so it is always the biggest number.
- Net margin is what is left after every cost, divided by price.
The model used throughout this page, per order:
Contribution = (1 - r) x P - C - S - F
Net profit = Contribution - A
Break-even ROAS = P / Contribution- P is the price the customer pays, including any shipping you charge.
- r is the share of orders refunded. A refunded order returns the revenue, but you have still paid the supplier and the shipping. That is why r multiplies only P.
- C is the supplier's product cost. S is the supplier's shipping cost to your customer.
- F is the payment fee: percentage times P, plus the fixed amount.
- A is ad spend per order (your cost per acquisition).
- ROAS is revenue per ad dollar. Break-even ROAS is the ROAS at which A equals Contribution, so profit is zero.
Assumptions: the payment fee is not returned on refunds, refunded goods are not resold, and there are no chargebacks. Chargebacks add a dispute fee plus the lost order, covered further down.
Which fees come out of every order?
| Item | Rate | Source |
|---|---|---|
| Stripe, US domestic cards | 2.9% + $0.30 per successful transaction | Stripe pricing, read 2026-10-18 |
| Stripe, international cards | +1.5%, plus 1% if currency conversion is needed | Stripe pricing |
| Stripe dispute fee | $15 per dispute, plus $15 more if you contest it manually (refunded only if you win) | Stripe pricing |
| PayPal Checkout, US domestic | 3.49% + $0.49 | PayPal business fees, read 2026-10-18 |
| PayPal international surcharge | +1.50% | PayPal merchant fees |
| PayPal dispute fee | $15 standard | PayPal merchant fees |
| PayPal chargeback fee | $20, for payments not made through a buyer's PayPal account | PayPal merchant fees |
| Shopify third-party payment provider fee (if you do not use Shopify Payments) | 2% on Basic, 1% on Grow, 0.6% on Advanced | Shopify pricing, read 2026-10-18 |
| Etsy listing fee | $0.20 per listing, renews every 4 months | Etsy fees policy, updated 5 Oct 2026 |
| Etsy transaction fee | 6.5% of item price plus shipping and gift wrap you charge | Etsy fees policy |
| Etsy payment processing, US | 3% + $0.25 per order | Etsy Payments policy |
| Etsy Offsite Ads | 15% of the order total for shops under $10,000 in sales over the prior 365 days, 12% once past it, capped at $100 per order; only on orders attributed to those ads | Etsy fees policy |
The worked examples below use a 2.9% + $0.30 card rate, which is Stripe's published US rate. Shopify Payments rates differ by plan and country, and the USD figures are not confirmed here, so read yours on Shopify's pricing page and swap them in.
Supplier shipping has no market average. Each supplier publishes its own rate table by weight and destination, so the examples use labelled hypothetical costs. Replace them with your supplier's current rates.
What does a worked dropshipping P&L look like?
All three products below are hypothetical examples, not named suppliers or real listings. Refund rates are assumptions you should replace with your own.
Example 1: a small desk lamp
Price $49.99, free shipping, supplier cost $18.00, supplier shipping $6.50, refund rate 5%.
| Line | Amount |
|---|---|
| Price (P) | $49.99 |
| Refund allowance (5% x P) | -$2.50 |
| Product cost (C) | -$18.00 |
| Supplier shipping (S) | -$6.50 |
| Payment fee (2.9% x 49.99 + 0.30) | -$1.75 |
| Contribution before ads | $21.24 |
| Margin before ads | 42.5% |
| Break-even ROAS (49.99 / 21.24) | 2.35 |
The gross margin on this item looks like 64% ((49.99 - 18) / 49.99). After shipping, fees and refunds it is 42.5% before ads. At a ROAS of 3.0, ad spend per order is 49.99 / 3 = $16.66, so net profit is 21.24 - 16.66 = $4.58, a net margin of 9.2%.
Example 2: a $19.99 accessory
Price $19.99, free shipping, supplier cost $5.00, supplier shipping $3.50, refund rate 8%.
Contribution: 0.92 x 19.99 = 18.39, minus 5.00, minus 3.50, minus fee 0.88 (2.9% x 19.99 + 0.30) = $9.01, a 45.1% margin before ads. Break-even ROAS is 19.99 / 9.01 = 2.22.
At a ROAS of 3.0, ads cost $6.66 per order, leaving $2.35, which is 11.8% net. The fixed $0.30 fee takes a larger bite from cheap items.
Example 3: a bulky item
Price $79.99, supplier cost $34.00, freight-style supplier shipping $19.00, refund rate 6%.
Contribution: 0.94 x 79.99 = 75.19, minus 34.00, minus 19.00, minus fee 2.62 = $19.57, a 24.5% margin before ads. Break-even ROAS is 79.99 / 19.57 = 4.09. The gross margin looks like 57%, but shipping consumes a quarter of the price. At a ROAS of 3.0 this product loses money: ads cost $26.66 per order against $19.57 of contribution, a loss of $7.09 per order.
What is break-even ROAS for dropshipping?
Break-even ROAS is the lowest return on ad spend at which a channel does not lose money. If your ad platform reports a ROAS below it, you pay to make sales. If it is above, the gap is your profit.
| Product | Contribution before ads | Break-even ROAS | Net profit at ROAS 3.0 |
|---|---|---|---|
| Desk lamp, $49.99 | $21.24 | 2.35 | +$4.58 |
| Accessory, $19.99 | $9.01 | 2.22 | +$2.35 |
| Bulky item, $79.99 | $19.57 | 4.09 | -$7.09 |
Break-even ROAS rises quickly as contribution shrinks: a product with a 25% margin before ads needs about twice the ad efficiency of one with 45%.
Is free shipping worth it in dropshipping?
Free shipping changes the arithmetic in one direction only: you still pay S, and it now has to come out of P.
Take example 2 and charge $4.99 shipping instead of absorbing it. P becomes 24.98 (price plus shipping paid). The fee is 2.9% x 24.98 + 0.30 = $1.02. Contribution is 0.92 x 24.98 = 22.98, minus 5.00, minus 3.50, minus 1.02 = $13.46. Break-even ROAS falls from 2.22 to 24.98 / 13.46 = 1.86.
That is better on paper. What paper does not show is conversion, and there is no reliable general number for how much a shipping line costs you. Test both variants with the same traffic. On Etsy there is an additional wrinkle: the 6.5% transaction fee applies to the shipping you charge as well as the item price, per Etsy's fee policy.
Run the lamp on Etsy instead, free shipping, no Offsite Ads sale: transaction fee 6.5% x 49.99 = $3.25, listing fee $0.20, processing 3% x 49.99 + 0.25 = $1.75, total $5.20 against $1.75 at a 2.9% + $0.30 card rate. Contribution drops from $21.24 to $17.79 and break-even ROAS rises from 2.35 to 2.81. If a sale comes through Offsite Ads at the 15% rate for shops under $10,000 in yearly sales, subtract another $7.50. For which products Etsy allows at all, see Is Print on Demand Allowed on Etsy?, which also covers the platform rules that apply to supplier-shipped goods.
If you take payments through PayPal on Shopify Basic instead of Shopify Payments, the stack is PayPal's 3.49% + $0.49 plus Shopify's 2% third-party fee. On the lamp that is $1.74 + $0.49 + $1.00 = $3.23, not $1.75. That is $1.48 of margin on every order.
How much do refunds and chargebacks cut the margin?
The refund rate is the input people guess. Here is the lamp (example 1) across a range of refund rates, with every other line unchanged. Contribution = (1 - r) x 49.99 - 26.25.
| Refund rate | Contribution before ads | Margin before ads | Break-even ROAS |
|---|---|---|---|
| 0% | $23.74 | 47.5% | 2.11 |
| 3% | $22.24 | 44.5% | 2.25 |
| 5% | $21.24 | 42.5% | 2.35 |
| 8% | $19.74 | 39.5% | 2.53 |
| 12% | $17.74 | 35.5% | 2.82 |
| 15% | $16.24 | 32.5% | 3.08 |
Each added point of refund rate costs about $0.50 of contribution on a $49.99 product. Moving from 5% to 15% pushes break-even ROAS from 2.35 to 3.08, which is the difference between an ad set that works and one that does not.
Refund rate is driven largely by shipping time and "where is my order" disputes. The process side, with the policies and evidence that matter when a customer disputes a charge, is in Print on Demand Refunds, Chargebacks and Shipping Times. The numbers here are the cost side only.
A chargeback is worse than a refund. You lose the order value, still owe the supplier, and pay a dispute fee: $15 on Stripe, and $15 standard on PayPal ($20 for some payments not made through a buyer's PayPal account); see the fee table.
Shipping promises also have a legal floor in the US. Under the FTC's Mail, Internet or Telephone Order Merchandise Rule, if you state no shipping time you are held to 30 days from receiving a properly completed order (50 days if the buyer applied for credit to pay at the time of ordering). If you cannot meet your date, you must offer the customer a choice of a delay or a refund (16 CFR 435.2). Supplier shipping that takes three weeks is therefore both a refund-rate problem and a compliance one. This is general information, not legal advice.
Doing this sheet by hand for every order is where most stores lose the thread. You can test your own numbers in the dropship margin and shipping calculator. To see what Slop City costs, go to pricing.
Which products are not worth dropshipping?
Compute contribution at your honest refund rate, then break-even ROAS, and compare it with what your channel returns.
- Bulky or heavy items. Example 3: shipping took a quarter of the price.
- Low-priced items. The fixed $0.30 fee and the cost of winning a customer do not shrink with price.
- High expected refund rates, such as size or fit driven products.
- Supplier shipping times you cannot promise. The cost is the refund plus the dispute fee.
- Products needing a ROAS you have never reached. If your channels return 2.0 to 2.5 and the product needs 4.09, only price or supplier can fix it.
FAQ
What is a good dropshipping profit margin? One that stays positive at the ad cost you actually pay. In the examples above, margin before ads was 24.5% to 45.1%, and after ads at a 3.0 ROAS it ran from a 9% loss to a 12% profit.
How do I calculate break-even ROAS? Price divided by contribution per order: 49.99 / 21.24 = 2.35 for the lamp.
Should I offer free shipping? It is a price decision, since you still pay it. Test it against charged shipping with the same traffic.
How long can I take to ship in the US? With no stated time, 30 days under 16 CFR 435.2, otherwise offer a delay or a refund.
Do processor fees come back on refunds? Check your processor's terms. The examples assume they do not.
Sources and last verified
Last verified 2026-10-18. Author: Slop City team. Sources: Stripe pricing, PayPal business fees, Shopify pricing (third-party fee percentages; read the USD card rates for your plan there), Etsy fees policy, Etsy Payments policy, 16 CFR 435.2.
All product costs, supplier shipping, refund rates and ROAS values in the examples are hypothetical inputs, not market averages or measured data. The 10% to 30% net range in the introduction is as published by tool and vendor blogs and is not independently verified.