Good Profit Margin for Dropshipping: Landed-Cost Math for 2026
Quick answer: A good dropshipping margin is one that still leaves profit after you've paid to win the sale. Measure it in three layers. Gross margin is what's left after landed cost: product, sourcing, packing, shipping and US duty. Contribution margin is what's left after ad cost per sale, payment fees and refunds. Net margin is what's left after fixed costs. There's no official benchmark, but the arithmetic is unforgiving: if ads cost you 30% of the price per sale, you need a gross margin of roughly 47% just to keep 10%. And since every US parcel from China now pays duty, a margin worked out on product cost alone overstates your profit.
Margin, markup and the three layers
Margin is profit divided by the selling price. Markup is profit divided by cost. They're easy to mix up and the gap is large: a product that lands at $11.37 and sells for $29.99 has a 164% markup but a 62% margin. Price with markup if you like; judge the business on margin. Our pricing strategy guide has a markup-to-margin conversion table.
- Gross margin = (price − landed cost) ÷ price. Tells you whether the product can carry advertising at all.
- Contribution margin = (price − landed cost − ad cost per sale − payment fees − refunds) ÷ price. Tells you whether each order makes money.
- Net margin = contribution minus fixed costs (store plan, apps, tools) spread over your orders. Tells you whether the business does.
The landed-cost stack
Landed cost is every cost needed to put one order in your customer's hands, duties paid. Some lines come from your supplier's price list, some only from a quote.
| Line | What it covers | Where the number comes from |
|---|---|---|
| Product | Factory price per unit | Your quote |
| Sourcing fee | Finding, buying and receiving goods | PackQuay: 10% of goods up to $5,000 per transaction, falling to 4% above $200,000 |
| Pick and pack | Picking, packing and labelling each order | PackQuay: $2.00 to $1.00 per order depending on daily volume |
| Packaging | Mailer, box, insert card | Quoted per design and quantity |
| Shipping | The line from China to your customer | Charged at cost; depends on weight, size and destination |
| US duty | Import duty on every parcel | Depends on the product's tariff code; prepaid when you ship duties paid |
Why duty is on the list at all: parcels under $800 used to enter the US duty-free. That ended for China and Hong Kong in May 2025 and for every country in August 2025. US Customs made the suspension indefinite in June 2026, and the law repeals the exemption permanently from July 1, 2027. Ship duties paid, so the cost sits in your price instead of on your customer's doorstep; our international shipping guide explains why.
Worked example: one order, three margins
A made-up pet grooming glove selling for $29.99. Sourcing and pick-and-pack are PackQuay's published rates (a day with fewer than 20 orders, a batch under $5,000). Everything marked "example" is an assumption for illustration, not a quote.
| Line | Amount | Running total |
|---|---|---|
| Selling price | $29.99 | |
| Product (example) | $3.20 | |
| Sourcing fee, 10% | $0.32 | |
| Pick and pack | $2.00 | |
| Mailer (example) | $0.15 | |
| Shipping, duties-paid line (example) | $4.80 | |
| US duty (example) | $0.90 | |
| Landed cost | $11.37 | Gross profit $18.62 = 62.1% gross margin |
| Payment fees (example: 3% + $0.30) | $1.20 | |
| Refunds (example: 3% of sales) | $0.90 | |
| Ad cost per sale (example) | $11.00 | $5.52 left = 18.4% contribution margin |
| Fixed costs (example: $300 a month over 600 orders) | $0.50 | $5.02 left = 16.7% net margin |
A 62% gross margin sounds generous. After ads it's 18%. That drop is normal, and it's why gross margin targets have to be high.
What "good" looks like
Your ad cost per sale decides how much gross margin you need. This table assumes payment fees of about 4% of the price, refunds of 3%, and a goal of keeping 10% of every sale as contribution.
| Ad cost per sale, as % of price | Gross margin you need |
|---|---|
| 20% | 37% |
| 30% | 47% |
| 40% | 57% |
| 50% | 67% |
You only learn your real ad cost from testing, so until then, a product with a gross margin under about 40% has very little room. Two more benchmarks worth knowing for your own store:
- Break-even ROAS = price ÷ contribution before ads. In the example: $29.99 ÷ $16.52 = 1.82. Ads returning less than $1.82 per $1 spent lose money on every order.
- Price level matters. Per-order costs don't shrink with the price. Using the same example figures, $2.00 pick and pack plus $4.80 shipping is 23% of a $29.99 price but 68% of a $9.99 one. Cheap products need bundles or a different setup to work. Our guide to what makes a good product covers this.
Where margin leaks
- Refunds and reships for damaged, faulty or "not as described" items. Each one costs the full landed cost again.
- Duties unpaid at the border. A customer asked to pay at the door may refuse the parcel, and you pay the trip twice.
- One order, several parcels. Items from different suppliers shipped separately each pay their own shipping.
- Retail sourcing. Buying a daily seller at marketplace prices instead of factory prices.
- Ad costs rising quietly as competitors copy a product. Check cost per sale weekly, not monthly.
Six ways to raise margin without raising the price
- Sell more units per order. On our rates, a second unit of the same SKU adds $0.50 to pick and pack (a different SKU adds $1.00) instead of a whole new order and parcel. Bundles and "buy 2" offers lift order value faster than they lift cost.
- Grow into lower fulfilment tiers. Pick and pack drops from $2.00 per order (1–19 orders a day) to $1.50 (50–99) and $1.00 (149 or more). In the example, $0.50 saved per order is 1.7 points of margin.
- Buy at factory prices once a product sells daily, through a sourcing agent rather than a marketplace listing.
- Order bigger batches when sales justify it: the sourcing fee falls from 10% to 9% above $5,000 per transaction, and keeps falling.
- Match the shipping line to the parcel. Weight, size and destination all change which line is cheapest for the delivery time you promise.
- Cut refunds at the source. Inspection before dispatch costs less than a reship. We check 20% of every batch free.
Then test whether a price change helps too: see how to test products, where break-even cost per sale comes straight from this math.
How PackQuay helps
Our fees are published and there's no subscription or monthly fee, so you can build your margin model before you send a single order. Send a product link on WhatsApp and your account manager quotes the full landed cost, duties paid, to your market. Shipping is charged at cost across 30+ lines, and multi-item orders go out as one parcel. The full fee table is on our pricing page.
FAQ
What is a good profit margin for dropshipping?
There's no official benchmark. What matters is whether gross margin after landed cost covers your ad cost per sale, fees, refunds and the profit you want. If ads cost 30% of the price per sale, you need roughly 47% gross margin to keep 10%.
How do I calculate dropshipping profit margin?
Subtract landed cost (product, sourcing fee, packing, shipping and US duty) from the selling price and divide by the price for gross margin. Then subtract ad cost per sale, payment fees and refunds for contribution margin, and fixed costs for net margin.
Should US import duty be included in cost of goods?
Yes. Every parcel from China to the US now pays duty, so it's part of what each order costs you. Ship duties paid and include duty in landed cost, or your margin will look better than it is.
Why is my gross margin high but I'm still losing money?
Usually because ad cost per sale is eating it. A 60% gross margin can fall below 20% after ads, fees and refunds. Calculate contribution margin per order and compare it with your break-even ROAS.
What is break-even ROAS?
The return on ad spend at which an order neither makes nor loses money. Divide the selling price by what's left of it after landed cost, payment fees and refunds. In our example it's $29.99 ÷ $16.52, or 1.82.