Short answer
Take the price without GST, subtract every cost that order carries (product, shipping, packaging, payment fees, returns, ad spend and a share of your plan and apps), and what is left is profit. Divide it by the price without GST for margin. Most owners overstate profit because they leave out fees, returns and ads.
Margin and markup are not the same
Margin is profit as a share of what you sell for. Markup is profit as a share of what the product cost you. A product that costs 450 and sells for 900 has a markup of 100 percent and a margin of 50 percent.
Mixing them up is how stores underprice. Aiming for a 50 percent markup, thinking it is a 50 percent margin, leaves you with a margin of about 33 percent, and everything else comes out of that.
Start from the price without GST
If your price includes GST, that part is not yours. It goes to the government. At 18 percent GST, a 1,499 price is really 1,270 of revenue. Working from 1,499 makes every margin look better than it is.
Try it now: Shopify Profit Margin and Fees Calculator →
A worked example
This is an example with made up numbers, not a quote of anyone's real fees. A product sells for 1,499 including 18 percent GST. Revenue without GST is 1,270.
The costs on that order: product 450, shipping and packaging 85, the payment gateway at 2 percent plus GST on the fee 35, Shopify's own per-order fee for using an outside gateway on the Basic plan at 2 percent plus GST 35, returns and failed deliveries 12 (8 percent of orders costing 150 each), a share of the plan and apps 16, and ads 250. That is 884 in all.
Profit is 387 per order, a margin of 30 percent, from a price that looked like 1,499. Take away the ad spend and the same order earns 637.
The costs people forget
Returns and failed deliveries. Every returned or undelivered order costs shipping both ways and often the product. Cash on delivery orders are the usual source.
GST on the payment fee. Gateways charge GST on their own fee. If you cannot claim it back, it is a real cost.
Shopify's per-order fee. Shopify Payments is not available in India, so every order goes through an outside gateway, and Shopify charges its own fee on each one. It is easy to miss because it never shows as a separate charge at checkout.
The plan and the apps. They look small per month, but spread across a few hundred orders they are a cost on every one.
Ad spend. Dividing total ad spend by total orders gives the cost per order, and it is usually the largest line after the product.
Break-even ROAS
Return on ad spend, or ROAS, is the revenue an ad earns for each rupee spent. The ROAS at which you make nothing is the price divided by the profit you earn before ads. In the example above, profit before ads is 637 on a 1,499 sale, so break-even ROAS is about 2.35.
Below that number, each order loses money. Know it before you set a target.
The price that gives the margin you want
Work backwards from the margin. Because the fees are a share of the price, raising the price raises the fees too, so the sum is a little more than a simple mark-up. A calculator solves it for you, and for the example a 30 percent margin needs about 1,489.