The Real Dropshipping Economics (Margins, CAC, LTV)

Impulse-buy gadgets: 8–28 CAC on Meta
Pet niche: 2–34 CAC, but 1.6–1.9x repeat rate
Apparel: 8–55 CAC, sized inventory risk inflates returns
Wellness / supplements: $35–70 CAC, but LTV can hit 3x with subscription

9 min · text · Beginner

Most dropshipping gurus quote revenue. The number that decides whether you eat next month is contribution margin after Meta tax. Today we draw the line between the two — with real numbers, not screenshots of a Stripe dashboard at 11pm.

Revenue is vanity, contribution margin is sanity

Open any dropshipping YouTube channel and you will see a thumbnail with "$47,000 in 7 DAYS" stamped over a Lamborghini. That is revenue. Revenue is the number you tell your friends. Contribution margin is the number that survives a chargeback.

Here is the actual stack you need to subtract from every dollar of revenue:

COGS (cost of goods from AliExpress / supplier)
Shipping (your cost, even if you advertise free shipping)
Payment processing (Stripe, Shopify Payments — typically 2.9% + $0.30 in the US, 1.75% + $0.30 in AU, 1.4% + £0.20 in UK)
Platform fees (Shopify $39-79/mo, apps $30-150/mo, theme one-off)
Ad spend ("Meta tax")
Returns and refunds (2-6% of revenue depending on category)
Chargebacks (0.3-1.0% — small but kills your account if it crosses 1%)
Sales tax (varies by jurisdiction — see regional note below)

🌍 Regional note — sales tax: - US: Sales tax varies by state (0-10%), no federal VAT - UK: 20% VAT, registration threshold £85k - Australia: 10% GST, registration threshold A$75k - EU: VAT 17-27%, IOSS for imports under €150

What's left is your contribution margin: the dollars per order available to pay yourself, build inventory, and reinvest.