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Unit economics
Profit margin for a Pakistani e-commerce store, worked out line by line
Most sellers here calculate margin the way a shopkeeper does: price minus product cost. That number is not your margin. This is the full version, with returns, courier charges and ad spend where they actually belong.
Haseeb Awan
5 September 2026
12 min read
Definition
What margin actually measures
Profit margin is profit expressed as a share of revenue. It answers one question: out of every hundred rupees a customer pays you, how many are still yours at the end of the month.
Two versions matter to a store. Gross margin looks at one product: price minus what the product itself costs you. Net margin looks at the business: what is left after the product, the packing, the courier, the returns, the ads, the fees and the tax.
Gross margin tells you whether a product can be sold profitably. Net margin tells you whether your business is being run profitably. Sellers who only track the first one usually discover the second one too late.
Net margin
net profit ÷ revenue × 100
Revenue here means money you actually collected — not the value of every order that was booked.
The Pakistani difference
Booked revenue vs delivered revenue
In a card-payment market, a sale is a sale. In a cash-on-delivery market, an order is a request. A share of your orders will be refused at the door, unreachable on the phone, or returned after delivery, and the courier will still charge you for the trip.
So there are two revenue numbers in every Pakistani store, and the gap between them is where margins die:
01
Booked revenue — the total value of orders placed on the site. This is the number your Shopify dashboard shows you and the number people quote on Instagram.
02
Delivered revenue — the value of orders that were paid for. This is the only number you can spend.
Use delivered revenue everywhere
If your return rate is 25%, a Rs 10 lakh month on the dashboard is a Rs 7.5 lakh month in the bank, while ads, packing and courier charges were paid on all of it. Every margin calculation below is built on delivered revenue for that reason.
Worked example
A full worked example in rupees
Take a product priced at Rs 2,499 — a typical mid-range COD item. Assume a 25% return rate, which is normal for a store that does not confirm orders by phone.
Line item
Amount
Selling price
Rs 2,499
Product cost
Rs 950
Packing and label
Rs 60
Courier, delivered order
Rs 220
Courier, returned order
Rs 180
COD collection fee (~1.5%)
Rs 37
Return rate
25%
Ad spend per booked order
Rs 500
Now run 100 booked orders through it. 75 are delivered and 25 come back.
Per 100 booked orders
Amount
Delivered revenue (75 × 2,499)
Rs 187,425
Product cost (75 × 950)
Rs 71,250
Packing (100 × 60)
Rs 6,000
Courier on delivered (75 × 220)
Rs 16,500
Courier on returns (25 × 180)
Rs 4,500
COD fees (75 × 37)
Rs 2,775
Ad spend (100 × 500)
Rs 50,000
Net profit
Rs 36,400
Net margin
19.4%
Rs 36,400 on Rs 187,425 collected. That is a healthy store. Change two inputs and watch what happens: push the return rate to 35% and the same product earns roughly Rs 14,000 on the same hundred orders. Let ad spend drift from Rs 500 to Rs 800 per order and it goes to zero.
Run it on your own numbers
The free profit calculator does this arithmetic for you, including your break-even ad cost. Change the return rate first — it moves the answer more than anything else on the page.
Hidden costs
The costs sellers leave out
When someone sends me a spreadsheet that says 40% margin, these are the lines that are usually missing:
01
Courier charges on returns. A refused parcel is billed for the delivery attempt and often for the journey back. At a 25% return rate this is a permanent tax on every campaign.
02
Ad spend on orders that never delivered. You paid the same rupee to acquire the order that came back as the one that stuck.
03
Confirmation calls. An agent, a number, and the time to call every order. This is a cost — and usually the cheapest cost on this list, because it cuts the most expensive one.
04
Damaged and unsellable returns. A percentage of returned stock does not go back on the shelf, especially with fragile or cosmetic products.
05
Payment and platform fees. COD collection charges, Shopify subscription, apps, domain, and the payment gateway on prepaid orders.
06
Creative production. Shooting, editing, thumbnails, or whatever you pay someone else to make them.
07
Tax. Register properly and price with tax in mind; discovering it after a profitable quarter is an unpleasant way to learn the rate.
The number to memorise
Your break-even ad cost
Every store has one number that decides whether a campaign can be scaled: the most you can pay for a booked order and still break even. From the example above:
Break-even ad cost per booked order
contribution per delivered order × delivery rate − return costs per booked order
In the worked example: Rs 864. Above that you are buying orders at a loss.
Target ad cost for a 20% net margin
break-even ad cost − (0.20 × delivered revenue per booked order)
In the worked example: about Rs 490 per booked order.
Write both numbers on a sticky note next to your screen. When a campaign reports a cost per order of Rs 700, you no longer need an opinion about whether the creative is working — you already know it is unprofitable and by how much.
Benchmarks
Numbers worth aiming at
These are the working ranges I use when auditing a Pakistani store. They are not laws, and category matters, but a store outside them usually has a structural problem rather than an advertising problem.
Metric
Working range
Product cost as share of price
30–45%
Gross margin
55–70%
Return rate, no confirmation calls
20–35%
Return rate, with confirmation calls
10–18%
Ad cost per booked order
≤ 25% of price
Net margin, healthy store
15–25%
If your gross margin is below 50%, no amount of creative testing will save the account. Either the price goes up, the product cost comes down, or the average order value rises through bundles.
Corrections
Five expensive mistakes
01
Counting booked revenue as revenue. Fixed by using delivered revenue in every report you look at.
02
Judging campaigns on ROAS alone. A 3x ROAS is profitable for one store and fatal for another. Cost per delivered order against your break-even number is the honest test.
03
Ignoring the return rate because the courier is at fault. Returns are mostly caused by unconfirmed orders, unclear expectations on the product page and impulse buying. All three are yours to fix.
04
Pricing to be the cheapest. In a market with 25% returns, the cheapest seller is usually the first to run out of money.
05
Scaling on a day with good numbers. Ad platforms report the sale; the courier reports the truth two weeks later. Judge cohorts, not days.
FAQ
Questions I get on WhatsApp
What margin should I expect in my first three months?
Plan for close to zero. You are paying for learning: creative that misses, a return rate you have not yet worked on, and prices you will revise. Build a plan that survives a break-even quarter.
Should I charge for delivery or absorb it?
Absorb it in the price where you can. Delivery charges added at checkout raise the refusal rate at the door, and refusals cost more than the delivery fee.
Do prepaid orders change the maths?
Substantially. Prepaid removes the return-cost line and the collection fee. A small discount for prepaid payment is often the cheapest margin improvement available to you.
My margin is fine but I have no cash. Why?
Margin is not cash flow. Courier settlements arrive on a cycle, ads are paid immediately, and stock is paid before either. A profitable store can still run out of money mid-month.
How often should I recalculate?
Every time product cost, courier rates or the return rate move — and once a month regardless. These inputs drift quietly.
Want this run on your own store?
Send me your price, product cost, courier rate and return rate on WhatsApp. I will tell you your break-even ad cost and where the margin is leaking.
Written by
Haseeb Awan
Media buyer, e-commerce operator, founder of Digital Hafizabad
I run paid campaigns on Meta, TikTok, Google and Snapchat for stores in Pakistan and for clients in the US, UK, Australia and the Gulf, and I have trained over 5,000 students across my programs. The arithmetic in this article is the same sheet I open before quoting any account.
