It's easy to price against landed cost alone and be surprised by how much smaller the real profit is. Here's the full stack, in order, plus a worked example that runs one sale through every layer.
1. Landed cost (COGS)
Your product cost plus freight/duties to get it to you — see Understanding Landed Cost, Margin, and Markup and How to Calculate True Landed Cost per Unit.
2. Referral / transaction fee
The marketplace's percentage cut of the sale price — varies by category and platform, typically in the 6-15%+ range. See each marketplace hub for current rates.
3. Fulfillment cost
Either the marketplace's own fulfillment program fee (FBA/WFS) or your own shipping/3PL cost if self-fulfilled — typically tiered by size and weight, not a flat percentage. See Fulfillment & Logistics.
4. Storage fees
If you use a marketplace fulfillment program, storage is usually billed separately from the per-order fulfillment fee — a recurring monthly charge based on the space your inventory occupies, often with a steep long-term storage surcharge on top of the standard rate once a unit has sat unsold past a platform-defined age threshold. This is easy to forget because it doesn't show up on the per-sale receipt the way referral and fulfillment fees do — it bills against your overall inventory levels, not the specific sale. See Inventory Management for turnover targets that keep this cost under control.
5. Payment processing (where applicable)
Marketplaces typically build this into their referral fee; on your own DTC site, this is a separate line (commonly around 2.9% + a flat fee per transaction).
6. Advertising
Rarely optional in a competitive category — model a realistic ACOS/TACOS (see ROAS vs. ACOS vs. TACOS) rather than assuming organic sales alone.
7. Returns
The amortized cost of units that come back, particularly relevant in high-return categories like apparel. This isn't just the refunded sale price: a returned unit can also cost you a return-processing/restocking fee, the outbound shipping you already paid, and — if the unit can't be resold as new — some or all of its landed cost.
What's left: contribution margin
Whatever remains after all of the above is your contribution margin — what actually funds fixed costs (rent, salaries, tooling) and profit. See Gross vs. Contribution vs. Net Margin for exactly how this number differs from gross margin. Model your specific numbers with the Product Profitability Calculator rather than estimating any one line in isolation.
A full worked example
A $30.00 sale price, landed cost $9.00:
| Layer | Amount | Running total deducted |
|---|---|---|
| Sale price | $30.00 | — |
| Landed cost | −$9.00 | $9.00 |
| Referral fee (15%) | −$4.50 | $13.50 |
| Fulfillment fee | −$5.20 | $18.70 |
| Storage (amortized per unit) | −$0.35 | $19.05 |
| Advertising (assumed ~12% ACOS) | −$3.60 | $22.65 |
| Returns (amortized at an assumed return rate) | −$0.60 | $23.25 |
| Contribution margin | $6.75 (22.5%) |
Notice the gap between a naive margin calculation (($30 − $9) ÷ $30 = 70% "margin") and the real 22.5% contribution margin once every layer is included. That 70% number is gross margin — real, but not the number that should drive a go/no-go pricing decision.
Best practices
- Model every layer with your own actual numbers, not category-typical assumptions, once you have real sales data — assumptions are fine for a launch price, not for an ongoing pricing decision.
- Recalculate the full stack whenever any one layer changes materially (a fee schedule update, a freight rate change, a return-rate shift) rather than only at initial pricing.
- Keep storage and returns visible as explicit line items even though they don't appear on a single order's receipt — both are easy to under-count because they don't bill per-sale the way referral fees do.
Mistakes
- Pricing against landed cost or gross margin alone and being surprised when real profit is much thinner.
- Forgetting storage fees entirely because they bill on a schedule disconnected from any individual sale.
- Using a company-wide average return rate for a SKU that has a materially different return rate than the average (see SKU-Level Profitability Analysis).
- Assuming payment processing is "free" on a marketplace without checking whether it's genuinely bundled into the referral fee for that specific platform.
Checklist
- Landed cost calculated from actual supplier, freight, and duty figures.
- Current referral fee rate confirmed for the specific category on the specific marketplace.
- Fulfillment fee calculated from the product's actual size/weight tier, not a rough guess.
- Storage cost estimated based on expected inventory turnover, including any long-term storage risk.
- Realistic ACOS/TACOS assumption included, not "organic sales only."
- Return rate assumption based on this SKU's actual or category-comparable history, not a generic default.