A SKU on your bestseller list can still be losing money, because "profit" gets calculated four different ways depending on who in your team is asked. Gross margin, contribution margin, trusted profit, whatever your accountant filed last quarter. Below is what each of these actually means, plus the GST terms that trip up sellers moving from own-store to marketplace or back.
Profit terms
What is trusted profit?
It's the same subtraction as any profit-per-SKU number: net revenue minus purchase cost, courier, marketplace fees, and a return allowance, calculated after stripping out GST. The word "trusted" refers to what happens before that subtraction, not a different formula. Plenty of spreadsheets carry a SKU with no landed cost on file, or a courier rate that's six months out of date, and the profit figure still gets calculated and shared as if it means something. Klean Profit AI checks for gaps like that first and flags them, so the number that comes out the other end has already survived the check.
What is contribution margin?
Revenue minus the costs that move with each sale: purchase cost, courier, marketplace fees. Your Zoho subscription, warehouse rent, salaries, none of that touches this number, because it stays the same whether you sell ten units this month or ten thousand. A SKU with a negative contribution margin loses money on every order regardless of volume. More ad spend won't fix it. The fix is a higher price, a cheaper supplier, or dropping the listing.
One SKU, three profit numbers
A home-decor item lists at ₹899 on Flipkart, GST-inclusive at 12%. It costs ₹380 to source, ₹65 to ship, carries an 18% marketplace commission, and roughly 8% of orders come back.
| Metric | Calculation | Amount |
|---|---|---|
| Net revenue (ex-GST) | ₹899 ÷ 1.12 | ₹803 |
| Gross margin | ₹803 minus ₹380 cost | ₹423 (53%) |
| Contribution margin | ₹423 minus ₹65 courier, ₹162 fees | ₹196 (24%) |
| Trusted profit | ₹196 minus ₹18 return allowance (8% of courier+fees) | ₹178 (22%) |
Anyone pricing ads or negotiating supplier terms off the ₹423 line is working with roughly double the profit that's actually sitting there. ₹178 is the number that should set the budget.
GST & compliance terms
What is an HSN code?
A numeric code that classifies a product for GST rate purposes and has to appear on your invoices. How many digits depends on last year's turnover: 4 digits up to ₹5 crore (mandatory on B2B invoices, optional on B2C), 6 digits above ₹5 crore on every invoice, 8 digits if you import or export. Get the code wrong and the problem isn't paperwork, it's the wrong GST rate applied to the whole listing.
What is reverse charge under GST?
Normally the seller collects GST and remits it. Under reverse charge the buyer pays it directly instead. For a D2C or marketplace seller this mostly shows up in two situations: buying from certain unregistered suppliers or notified goods, and under Section 9(5), where the marketplace itself remits GST on specified services on your behalf rather than you doing it. One thing worth knowing if it applies to you: GST registration becomes mandatory no matter your turnover, and the amount has to be paid in cash. Input tax credit can't be used to settle it.
What is TCS under GST?
Section 52 of the CGST Act. Whichever marketplace you sell through, Amazon, Flipkart, Meesho, deducts 0.5% of your net sale value before paying you out (0.25% CGST plus 0.25% SGST within a state, or 0.5% IGST across states). It used to be 1%, cut in July 2024. This isn't money lost. It lands as credit in your electronic cash ledger, and you reconcile it against the GSTR-8 the marketplace files when you claim it back.
FAQ
Is GST part of trusted profit or contribution margin?
No. It's collected from the buyer and passed to the government, and you get input credit against your own purchases, so it's neither income nor a cost. Both numbers are calculated on the price after GST is stripped out.
What TCS rate applies to Amazon, Flipkart and Meesho payouts?
0.5% of net sale value under Section 52 of the CGST Act, split 0.25% CGST plus 0.25% SGST for intra-state sales or 0.5% IGST for inter-state. You get it back as credit when you file, so it isn't sitting on top of your margin as an extra cost.
How many HSN digits do I need on invoices?
Four digits if last year's turnover was under ₹5 crore, required on B2B invoices and optional on B2C. Six digits above that, on every invoice. Eight digits for imports and exports.
Does reverse charge mean I have to register for GST?
Yes, if any part of what you buy falls under it. Registration is mandatory regardless of turnover, and the tax has to be paid in cash rather than offset with input tax credit.