This article will explain the calculation of settlement value when a product is sold. 


Settlement value is calculated as  


Settlement value =    Order item value
                                 (-) Channel fees

                                 (-) Reimbursement of sales tax

                                 (-) Eshopbox platform fees

                                 (+) Input tax credit 



Each of the term in the above formula is explained in detail below :

  • Order item value is actually sum of selling price of the product + shipping fees collected from customer.  
    • The selling price of the product is equal to MRP - brand discounts.  The discounts funded by channels are not deducted from MRP to calculate selling price. 
    • shipping fee can be collected from customers only in case of select channels. Also there are restrictions on the amount of shipping fee that can be collected from customer.

  • Channel fees is fees charged by channel for sales.  This may comprises of one or more than one or all of the below non exhaustive type of fees :
    • Selling commission :  This is charged as percentage of order item value and the percentage depends upon product category. Some channel may also charge fixed value as minimum selling commission per order. 
    • Payment collection fee : The structure for payment collection fee may vary based on type of order - prepaid or cash on delivery. 
    • Fixed fees : This is a fixed fee charged per order and may vary for different slabs of order item value. 
    • Shipping fees and Reverse shipping fees : This depends upon the weight and dimensions of the product and the shipping destination.  

  • Reimbursement of sales tax is the sales tax liability on eshopbox on account of being the seller of brand products.

  • Eshopbox platform fees comprises of two components - management fee which is a fixed fee per order shipped and transaction fee which is a percentage of order item value.

  • Input tax credit  is the amount of tax credits received by eshopbox when goods were billed to eshopbox. This is added back to brand's payment when the goods are sold. 


Let us elaborate above with an example illustrated in table below : 


Table 1 : Calculation of settlement value 


Description
 Reference
 Value
MRP
1000
Discount %
20%
Selling price
 A
 800
Shipping fee collected from customer
 B
 50
Order item value
 C= A+ B
 850



Channel margin (assumed to be 35%)
 D= 35%*C
 297.5



Reimbursement of taxes
 5%
 40.5



Eshopbox platform fees

Management fee (fixed fees)
 fixed fee
 55.00
Transaction fee (assumed to be 4%)
 4%*C
 34.00
Total eshopbox fees
 F
 89.00



Input GST refund (+)
 G
 22.6



Settlement Value
 H = C-D-E-F+G
 445.6




Example assumptions :

  • A product of MRP 1000 is sold at 20% discount at INR 800 on channel A. Shipping fee of INR 50 is collected from customer. Therefore order item value is SRP + shipping fee collected from customer = INR 850. 
  • Margin for channel A is 35% (for simplicity sake it is taken as purely a percentage of sale value. In actual it may be sum of multiple types of fees as explained in channel fees section).    Margin is calculated on total order item value meaning
    35%*Order item value = INR 297.5 
  • Assume tax rate applicable on this product is 5%. Now order item value is inclusive of taxes. By doing reverse calculation of taxes, tax liability on this sale = 850*5%/(1+5%) = INR 40.5
  • Total eshopbox fees of INR 87 consist of INR 55 management fee (fixed fee per order shipped) and a transaction fee as 4% of order item value (4%*850=32). Please note this is just an example value. Actual fees may vary. 
  • Input GST refund is the amount of input GST credits received by eshopbox when the product of MRP 1000 was billed to eshopbox at 50% billing margin. This comes out to be INR 22.6 . Please refer to Billing value calculation to know more details on how is this calculated