Two products both sell for $100. One costs you $40 to buy and $10 to ship. The other costs $60 and ships for free. With the same fees on both, the first gives you a 36.7% margin and a 73.4% ROI. The second gives you a 26.7% margin and a 44.5% ROI.
Both numbers say the first product is better. But they measure different things, and sometimes they disagree. Here is what each one tells you.
The fees in this guide are examples: 10% commission, 3% payment fee and 30 cents flat. Use your own.
What do margin and ROI each measure?
Margin % = Net profit / Price x 100
ROI % = Net profit / (Item cost + Shipping) x 100
Margin asks how much of each sale you keep. ROI asks how much you earn for every dollar you put in. The profit is the same in both. Only the number you divide by changes.
The ROI the calculators show uses item cost plus shipping as the money you put in. If you fill in the optional ad spend and returns fields, those are counted as money spent too. If your own definition of "money in" is different, for example it includes packaging, your ROI will differ.
Why is ROI higher than margin here?
Take the first product. The fees on a $100 sale are $13.30, so you keep $100 - $40 - $10 - $13.30 = $36.70.
- Margin: 36.70 / 100 = 36.7%.
- ROI: 36.70 / 50 = 73.4%.
You put in $50 and got $36.70 back as profit. That is a bigger share of what you spent than of what you sold for, so ROI comes out higher. Whenever you spend less than the sale price, ROI will be above margin.
Which one matters when I have a budget?
Say you have $1,000 to spend on stock, and you compare the two products above.
| Product A | Product B | |
|---|---|---|
| Money in per unit | $50 | $60 |
| Profit per unit | $36.70 | $26.70 |
| Margin | 36.7% | 26.7% |
| ROI | 73.4% | 44.5% |
| Units you can buy with $1,000 | 20 | 16 |
| Profit if they all sell | $734.00 | $427.20 |
With a fixed budget, ROI is the number that predicts what you end up with, because it tells you the profit per dollar you can spend. With plenty of stock and limited sales, margin matters more, because each sale is the scarce thing.
What does ROI leave out?
Time. A 73% return that takes six months to sell is worse than a 30% return that sells in a week, because you can reuse the money. ROI as shown here doesn't know how long your stock sits.
It also assumes every unit sells at that price. In practice, some don't, and that's a cost you'd add to the calculation.
So which one should I use?
Use both, for different jobs. Margin helps you set prices, since fees are a share of the price. My guide on pricing for a 30% margin shows how. ROI helps you choose between products when your money is limited. If you mix up margin with markup, that guide explains the difference.
Where do I see them?
Open the multi-platform calculator. The results show net margin, ROI and markup side by side, so you can compare products by typing in each one's numbers.
Who is writing this?
I'm Saqib, the developer behind PayoutCalc. I haven't run an online shop, so I stick to the arithmetic. Every number above was checked in the calculator. If something looks wrong, tell me.