Profit margin is the percentage of revenue that remains as profit after costs. Ecommerce businesses track two versions: gross margin, which is revenue minus the , and net margin, which is revenue minus every expense. Margin is expressed as a percentage of revenue, so a store with $100,000 in revenue and $10,000 in profit has a 10% net margin regardless of its size.
Gross margin vs net margin
| Margin type | What it subtracts | What it tells you |
|---|---|---|
| Gross margin | Cost of goods sold only | How efficiently you source or produce |
| Net margin | All expenses, including marketing, salaries, rent, software | Whether the whole business model works |
Gross margin guides pricing and sourcing. Net margin shows what you actually keep from each sale.
How do you calculate profit margin?
Gross Margin = (Revenue - COGS) / Revenue x 100 Net Margin = (Revenue - All Expenses) / Revenue x 100
For a store with $100,000 revenue, $40,000 in product cost, and $45,000 in other expenses, gross margin is 60% and net margin is 15%. Our break-even calculator shows how your margin affects the number of units you need to sell to cover costs.
How do profit margins vary by category?
Margins differ widely by category. Beauty and cosmetics tend to run high gross margins, while electronics are usually thin because the products are price-transparent and competitive. Net margins sit far below gross once marketing, salaries, and overhead come out, and they shift with how a store sells, since marketplace fees, returns, and ad spend all compress the final figure. Because the spread is so wide, compare your margin against your own category and history rather than a single global average. is one lever; our AOV benchmarks by industry show how basket sizes differ, and our AOV calculator works out yours.
Common profit margin mistakes
- High gross margin does not ensure profit. Marketing, returns, and overhead can erase a strong gross margin, which is why net margin matters.
- Margin and markup are not the same. A 50% margin means cost is half the price; a 50% markup means price is 1.5x the cost.
- Platform fees skew comparisons. Marketplace sellers show lower net margins partly because the platform takes a substantial cut in referral and fulfillment fees, while direct-to-consumer margins look higher but carry marketing costs elsewhere.
- Growing businesses may accept lower margins on purpose, spending on marketing and inventory to grow, so a declining margin needs context before it reads as a problem.
