Shopify's fee structure
Unlike Etsy, Shopify charges a monthly platform fee rather than per-listing or per-transaction fees. The plan you're on determines both your monthly cost and your payment processing rates.
Basic Shopify ($39/month): Online credit card rate of 2.9% + $0.30 per transaction. Third-party payment gateway fee of 2% if you don't use Shopify Payments. This plan is appropriate for solo sellers starting out.
Shopify ($105/month): Online credit card rate drops to 2.6% + $0.30. Third-party gateway fee drops to 1%. Adds professional reports and up to 5 staff accounts.
Advanced Shopify ($399/month): Online rate drops to 2.4% + $0.30. Third-party fee drops to 0.5%. Adds advanced reporting and custom report builder.
Most small Shopify businesses should start on Basic. The Shopify plan starts making mathematical sense when you're processing enough volume that the lower payment processing rate saves more than the $66/month upgrade cost. That break-even point is roughly $264,000 in annual revenue through Shopify Payments.
App costs: the hidden margin drain
Shopify apps are easy to install and easy to forget. Many sellers accumulate $100–300/month in app subscriptions — email marketing, reviews, upsells, subscriptions, loyalty programs, analytics — without tracking the aggregate cost.
Audit your active apps quarterly. For each paid app, calculate whether its measurable impact on revenue (tracked conversions, email-attributed sales) exceeds its cost by a comfortable margin. Apps that can't demonstrate ROI should be cancelled.
Essential apps for most early-stage Shopify stores: an email marketing tool (Klaviyo free tier handles up to 250 contacts), a reviews app (Judge.me has a generous free tier), and possibly an SEO optimization app. Everything else is optional until you can measure its impact.
The complete margin formula
True Shopify profit margin requires accounting for every cost category:
Revenue – COGS – Shipping (net of what buyer pays) – Payment processing fees – Shopify plan (allocated per order) – App costs (allocated per order) – Marketing spend (CAC) – Returns and refunds = Net profit
The marketing spend line is where Shopify margins often collapse. Many Shopify stores run on paid ads (Facebook, Google, TikTok) to drive traffic. When customer acquisition cost (CAC) is high relative to average order value (AOV) and customer lifetime value (LTV), you can have strong gross margin but still lose money after customer acquisition.
Worked example
A $65 candle sold through Shopify (free shipping included in price):
Sale price: $65.00
COGS (wax, wick, vessel, labels): -$12.00
Shipping cost (actual): -$8.00
Payment processing (2.9% + $0.30): -$2.19
Shopify Basic plan allocation ($39 ÷ 200 orders/month): -$0.20
App costs allocated ($60/month ÷ 200 orders): -$0.30
Total costs: -$22.69
Gross profit: $42.31 (65% margin)
If this order came from a Facebook ad with a $25 CAC:
Marketing cost: -$25.00
Net profit after CAC: $17.31 (27% margin)
This is why understanding LTV matters on Shopify. If this customer buys again at $65 with a much lower retention marketing cost, the total margin across both orders is much stronger. Shopify businesses with strong repeat purchase rates can sustain higher CAC than one-time-purchase businesses.
Margin benchmarks for Shopify
Gross margin (before marketing) benchmarks by product type: handmade physical goods typically target 55–70%; manufactured private-label products typically target 40–60%; print-on-demand typically achieves 20–35%; digital products typically achieve 70–90%.
Net margin (after all costs including marketing) for a healthy Shopify business is typically 15–30%. Businesses consistently below 15% net margin are either underpricing, overspending on acquisition, or have a cost structure that doesn't support the channel.