Product margins reflect the price charged for the stock
keeping units (SKU) offered for sale, less the cost paid to
the supplier of the goods, which includes the cost of
preparing these goods for shipment. Internet retailers can
also derive additional profits from positive S&H margins,
arising from the difference between the S&H fees charged
to online customers and the actual S&H costs paid to have
the products delivered to customer-specified destinations.
Together, the two components of product margin and S&H
margin comprise the total profit that the retailer can
potentially gain from any particular transaction involving
the sale of a product. In Table 1, we describe the structure
of the margins in the drop-shipping model.