How to calculate resale profit, ROI and margin

Every resale starts with the same question: after everything it cost me, what is left? These are the three numbers that answer it.

Profit: what is left in dollars

Profit is the sale price minus every cost of making the sale: what you paid for the item, the marketplace's percentage fee, any fixed fee, the shipping you pay, and packaging. If you leave one out, the profit you calculate is higher than the profit you get.

Return on cost: profit compared with what you spent

Return on cost, often called ROI, is profit divided by what you paid for the item. It tells you how hard each dollar you spent is working, which matters when you are deciding where to put limited money.

Margin: profit compared with the sale price

Margin is profit divided by the sale price. It tells you how much of each sale you keep. On a profitable sale the sale price is larger than what you paid, so margin comes out as a smaller number than return on cost for the same sale.

One worked example

These numbers are made up to show the arithmetic. They are not a benchmark for what a good resale looks like.

• You pay $20.00 for the item and expect to sell it for $50.00.
• The marketplace takes 13% of the sale price: $6.50.
• You pay $5.00 to ship it and $1.00 for packaging.

Profit is $50.00 − $20.00 − $6.50 − $5.00 − $1.00 = $17.50. Return on cost is $17.50 ÷ $20.00 = 87.5%. Margin is $17.50 ÷ $50.00 = 35%. Same sale, three numbers.

The break-even price

The break-even price is the lowest sale price at which you do not lose money. Your fixed costs here are $26.00 ($20.00 item, $5.00 shipping, $1.00 packaging). The fee takes 13% of whatever the item sells for, so only 87% of the sale price is left to cover them. Divide $26.00 by 0.87 and you get a little under $29.89. Because fees are rounded to the cent, the exact answer for this example is $29.88. Sell for less than that and you are paying to sell it.

Common mistakes

• Forgetting shipping and packaging, which are real costs on every sale.
• Quoting margin when you mean return on cost, or the other way round, so two people compare different numbers.
• Treating the price you hope for as the price you will get. Plan with a price you are confident it will sell at.
• Leaving out costs this calculation does not cover: sales tax, returns, advertising and your time.

To try your own numbers, use the resale profit and ROI calculator. It works for any marketplace because you enter its fee.