Separate product cost from order cost
Start with the cost of getting a sellable unit into stock: the product, its packaging and the inbound costs you allocate to it. Then list the variable costs triggered by a sale, such as channel charges, payment charges, picking, outbound shipping and an allowance for returns or damage.
Keep fixed overhead, one-off setup costs and variable costs in separate lines. Tooling or a brand identity project may matter to overall cash planning without being a charge incurred on each new order. State how you allocate shared costs instead of silently mixing them into the product quote.
An illustrative contribution calculation
The following numbers are invented to show the arithmetic. They are not a quotation, a platform fee schedule or a recommended selling price. All amounts are on the same assumed tax basis; obtain qualified advice on the actual tax treatment.
| Item | Amount |
|---|---|
| Revenue after discounts, excluding applicable taxes | ₹600 |
| Product and packaging | ₹220 |
| Allocated inbound freight | ₹20 |
| Channel and payment charges | ₹90 |
| Outbound fulfilment | ₹60 |
| Returns and damage allowance | ₹30 |
| Contribution before advertising and fixed overhead | ₹180 |
Total variable cost is ₹420. Contribution is ₹600 − ₹420 = ₹180, or 30% of the assumed revenue. If advertising attributable to that order costs ₹100, ₹80 remains before fixed overhead. This is not net profit: other business costs can still apply.
Margin and markup use different denominators
If a product costs ₹200 and sells for ₹300 on a comparable tax basis, the difference is ₹100. Markup on cost is ₹100 ÷ ₹200 = 50%. Margin on selling price is ₹100 ÷ ₹300 = about 33.3%. Neither number automatically includes channel, fulfilment, advertising or other costs.
Label each metric in your model. “We have a 50% margin” can be misleading if the calculation actually describes markup on the factory price. Use contribution per fulfilled order when discussing what a channel can support.
Test the assumptions that can move
Build a base case, a more demanding case and a better case for discounts, shipping costs, returns and acquisition cost. Use current official channel fee information for your category and fulfilment arrangement. Do not reuse a single fee percentage across every platform or assume it stays unchanged.
Compare economics at the expected realised price, not only at a printed maximum price. A promotion may change both the revenue and the cost of serving an order. Model how much volume you would need to recover a fixed cost at the contribution left after those effects.
Use break-even as a scenario, not a forecast
In a simplified illustration, ₹40,000 of fixed costs divided by ₹80 contribution per order gives 500 orders to cover those fixed costs. This assumes the contribution stays at ₹80, the fixed costs are complete and there are no capacity changes. Real businesses need to check those assumptions as volume changes.
Before setting prices, review the model with the appropriate finance and tax professionals. For packaging, labelling or MRP requirements, get category-specific regulatory advice. Yuvika can help organise product, channel and pricing assumptions into a launch plan that specialists and founders can review.
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