Understanding Margins

A guide to profit margins for ecommerce

Last updated: 17th January 2025

Understanding Margins

Profit margins are crucial metrics for evaluating your ecommerce performance.

What is a Margin?

A margin expresses profit as a percentage of revenue. It tells you how much of each dollar in sales you keep as profit.

Margin = (Profit ÷ Revenue) × 100

Types of Margins

Gross Margin

The percentage of revenue remaining after COGS.

Gross Margin = ((Revenue - COGS) ÷ Revenue) × 100

Example:

  • Revenue: $100
  • COGS: $40
  • Gross Margin: ($100 - $40) ÷ $100 = 60%

Net Margin

The percentage of revenue remaining after all expenses.

Net Margin = ((Revenue - COGS - Expenses) ÷ Revenue) × 100

Example:

  • Revenue: $100
  • COGS: $40
  • Expenses: $30
  • Net Margin: ($100 - $40 - $30) ÷ $100 = 30%

Margin vs Markup

These are often confused but are different calculations:

MetricFormulaExample
MarginProfit ÷ Selling Price$30 ÷ $100 = 30%
MarkupProfit ÷ Cost$30 ÷ $70 = 43%
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Note

A 50% markup does NOT equal a 50% margin. A 50% markup equals a 33% margin.

Conversion Chart

MarkupMargin
25%20%
50%33%
75%43%
100%50%
150%60%
200%67%

What's a Good Margin?

Margins vary significantly by industry and product type:

CategoryTypical Gross Margin
Luxury goods60-80%
Apparel50-65%
Electronics20-40%
Groceries10-25%
Handmade/Custom50-70%

Improving Your Margins

Increase Revenue

  • Raise prices strategically
  • Bundle products
  • Upsell and cross-sell

Reduce COGS

  • Negotiate with suppliers
  • Buy in larger quantities
  • Find alternative suppliers
  • Reduce shipping costs

Reduce Expenses

  • Optimize marketing spend
  • Reduce returns
  • Automate operations

Margin Analysis in CostSync

CostSync calculates margins automatically:

  1. Order margin - Profit margin for each order
  2. Product margin - Average margin per product
  3. Overall margin - Store-wide margin

Use the Reports feature to analyze margins by:

  • Time period
  • Product category
  • Supplier
  • Customer segment