How to Calculate COD Profitability
You sell a product for 299 MAD. It costs you 80 MAD, advertising 30 MAD per order and delivery 30 MAD. On paper, 159 MAD is left per order. This is the calculation everybody does, and with cash on delivery it is wrong.
It is wrong because an order received is not an order paid. In between, some customers do not confirm, and some shipped parcels come back. The advertising, though, was paid for everyone.
This guide shows how to calculate the real profitability of a COD product, step by step, with a worked example, the four numbers to track and the lever to pull first.
The three rates that change everything
With COD, your money goes through a funnel with three levels:
Orders received. You paid for advertising on every one of them.
Orders confirmed. The confirmation rate is the share of received orders that the customer confirms and that you ship.
Orders delivered. The delivery rate is the share of shipped parcels that the customer accepts and pays for. The rest is your return rate.
Only the last level brings money in. The first two only spend it.
Every cost to count
Each cost is triggered at a different level of the funnel. That is what makes the calculation misleading:
Per order received: advertising, and confirmation time (agent, phone, WhatsApp messages).
Per parcel shipped: packaging.
Per parcel delivered: the product cost and the delivery rate.
Per parcel returned: return fees, and sometimes the product itself if it comes back damaged.
Depending on your contract, add the shipping company's COD collection fees and your agents' commissions.
The example, step by step
The numbers below are made up, only to show the calculation. You receive 100 orders for a product sold at 299 MAD. Your confirmation rate is 60% and your delivery rate is 70%.
Step | Calculation | Amount |
|---|---|---|
Orders received | 100 | |
Orders confirmed and shipped | 100 × 60% | 60 parcels |
Parcels delivered | 60 × 70% | 42 parcels |
Parcels returned | 60 − 42 | 18 parcels |
Revenue collected | 42 × 299 MAD | 12,558 MAD |
Advertising | 100 × 30 MAD | − 3,000 MAD |
Confirmation | 100 × 3 MAD | − 300 MAD |
Packaging | 60 × 5 MAD | − 300 MAD |
Cost of delivered products | 42 × 80 MAD | − 3,360 MAD |
Delivery | 42 × 30 MAD | − 1,260 MAD |
Return fees | 18 × 10 MAD | − 180 MAD |
Profit | 4,158 MAD |
The quick calculation promised 159 MAD per order, or 15,900 MAD for 100 orders. The real result is 4,158 MAD: 99 MAD per delivered order, and less than 42 MAD per order received.
In this example, returned products go back into stock and are sold again. If some come back damaged, count their cost as a loss.
The four numbers to track
1. Profit per delivered order
Total profit ÷ delivered parcels. Here: 4,158 ÷ 42 = 99 MAD. This is what each completed sale really brings in, once it has paid for all those that did not complete.
2. Advertising cost per delivered order
Advertising spend ÷ delivered parcels. Here: 3,000 ÷ 42 = 71 MAD, while your ad platform shows 30 MAD per order. It is an easy gap to forget: your advertising really costs more than double.
3. Profit per order received
Total profit ÷ orders received. Here: 4,158 ÷ 100 = 41.58 MAD. This is the number to compare with your cost per order to know how far you can raise the advertising budget.
4. The break-even point
It is the delivery rate below which the product loses money. In the example, with 60% confirmation, it sits around 35%. The closer you are to it, the more a bad week at the shipping company is enough to put you in the red.
Which lever to pull first
Take the example again and change one number at a time:
Scenario | Parcels delivered | Profit | Difference |
|---|---|---|---|
Starting point | 42 | 4,158 MAD | |
Confirmation at 70% instead of 60% | 49 | 5,401 MAD | + 1,243 MAD |
Delivery at 80% instead of 70% | 48 | 5,352 MAD | + 1,194 MAD |
Advertising at 25 MAD instead of 30 MAD | 42 | 4,658 MAD | + 500 MAD |
Ten more points of confirmation or delivery bring in more than double what a 5 MAD drop in advertising cost does here. So before you look for cheaper advertising, look at what happens to the orders you have already paid for.
For confirmation: answer fast, follow up with customers you cannot reach and automate the first message. See our guide to WhatsApp order confirmation.
For delivery: ship quickly after confirmation and follow up on stuck parcels. See our six strategies to reduce your return rate and how to choose a delivery company.
The most common mistakes
Calculating on orders received. The revenue that counts is that of parcels delivered and paid for.
Judging an ad by its cost per order. Two campaigns with the same cost per order can give very different confirmation rates. Compare them on cost per delivered order.
Forgetting return fees. A return costs the packaging, the return fees and the advertising that brought the order.
Mixing all products together. A profitable product can hide another one that loses money. Do the calculation product by product.
Forgetting the payout delay. The shipping company pays you after delivery. In the meantime, you have already paid for the stock and the advertising: a profitable product can still drain your cash if you grow fast.
Run the numbers with your own figures
Our calculators use these formulas. You enter your figures, they do the rest:
the COD profitability calculator for the real margin and the return rate not to exceed;
the pricing and net profit calculator to find your floor price and your ideal price;
the CPA calculator to know how much you can pay for an order;
the return rate impact calculator to put a number on what your returns cost you.
Track your profitability in Sendocki
A calculator gives a snapshot at one moment. To follow your real numbers week after week, Sendocki calculates them from your orders.
In Analytics, the Finance tab starts from your revenue and removes, step by step, what is lost, the product cost, delivery fees, return fees and commissions, to arrive at your net margin. A separate block shows where the money is lost: orders cancelled before shipping, parcels shipped but not delivered, parcels delivered then returned.
The Products tab gives the delivered revenue and the margin of each product, as soon as you have entered its cost. You still have to deduct your advertising spend, which you know from your ad platform.
Frequently asked questions
How do I calculate the profitability of a COD product?
Start from the revenue of delivered parcels, then remove the advertising paid for all orders received, confirmation costs, the packaging of shipped parcels, the cost of delivered products, delivery and return fees.
What is the difference between the confirmation rate and the delivery rate?
The confirmation rate is measured on orders received: it is the share the customer confirms. The delivery rate is measured on shipped parcels: it is the share the customer accepts and pays for.
How do I calculate a return rate?
Returned parcels ÷ shipped parcels. In the example: 18 ÷ 60 = 30%. Calculate it over a period in which almost all parcels have a final status.
What selling price should I set?
First calculate your floor price, the one that covers all costs once returns are counted, then add the margin you are aiming for. A product sold too close to its floor price cannot survive a bad week.
Is it better to lower the advertising cost or raise the delivery rate?
Run the numbers with your own figures. In this article's example, ten points of confirmation or delivery bring in more than double what a 5 MAD drop in cost per order does, because the advertising for those orders is already paid.
Key takeaways
With COD, only delivered orders bring money in, and they pay for all the others. Calculate your profit per delivered order and per order received, know the delivery rate below which you lose money, and work on confirmation and delivery before you touch the advertising.
