How to calculate your true cost per order (with a worked example)

Revenue tells you how busy you are. Profit per order tells you whether the business works. Use this method to find it.

The cost stack for one order

Add up these items for a typical order:

1. Product cost (landed cost, including inbound freight and duty if any).
2. Packaging and inserts.
3. Shipping to the customer (courier charge, COD fee if any).
4. Payment gateway fee (a percentage of the order, plus GST on it).
5. Platform cost per order (percentage fee plus subscription divided by orders).
6. Returns cost (average cost of reverse shipping, repacking and unsellable stock, spread over all orders).
7. Discounts given on the order.
8. Customer acquisition cost (CAC): marketing spend divided by new customers.

A worked example (illustrative)

A kurta sells for ₹1,499 and the order is paid online.

Now subtract acquisition cost. If you pay ₹400 to win a new customer, the first order earns ₹370. If the customer reorders, those later orders carry no acquisition cost, which is why repeat buyers matter. See D2C metrics: AOV, CAC and LTV.

Handle cash on delivery separately

COD orders carry extra cost: a COD fee from the courier, a higher chance of refusal, and reverse shipping when parcels come back. Work out a separate line for them, using your own return-to-origin rate. Our guide to what RTO is shows how to calculate it.

Include fixed costs

Share the monthly fixed costs (platform subscription, tools, staff time you pay for) across your expected orders. If you ship 200 orders a month and fixed costs are ₹20,000, each order carries ₹100.

Use the number

• Set prices: make sure contribution covers CAC with room for profit (pricing guide).
• Set discounts: if contribution is ₹770, a ₹150 discount costs about a fifth of it (discounting).
• Set marketing budgets: the most you can pay to acquire a customer on first order alone is your contribution before marketing.

Common mistakes to avoid

• Counting only the courier's first leg. Return and failed-delivery shipping must be included, spread over all orders.
• Forgetting the payment fee on the full amount, including shipping and GST charged to the customer.
• Using the average order for every product. Calculate each best seller separately, because a small, cheap item can cost almost as much to ship as a large one.
• Treating discounts as marketing. A ₹150 coupon directly reduces what the order earns.
• Never revisiting the numbers. Courier rates, fees and return rates change, so rebuild the table every quarter.

What to do next

Build this table in a spreadsheet for your three best sellers, once for prepaid and once for COD. Update it each quarter, because courier rates and fees change.