Profit margin tells you how much of every dollar of revenue you actually keep. It's the number that separates a busy store from a profitable one — two shops with the same revenue can have wildly different margins. Here's how to calculate it properly.
Gross margin vs net margin
There are two margins you need, and they answer different questions:
- Gross margin — profit after the cost of the product itself. "Am I pricing above cost?"
- Net margin — profit after every cost. "Am I actually making money?"
The profit margin formulas
Gross profit = Revenue − COGS Gross margin = Gross profit ÷ Revenue Net profit = Revenue − COGS − shipping − fees − ads − returns − expenses Net margin = Net profit ÷ Revenue
Margin is always expressed as a percentage of revenue, which lets you compare products and orders of very different sizes.
Worked example
Revenue $100, COGS$40 → gross profit $60, gross margin 60%.
Take out shipping $6, payment fee $3, ads $10, returns $2 → net profit $39, net margin39%.
Notice the gap: a healthy-looking 60% gross margin becomes 39% once real costs are included. That gap is where most stores lose money without realising it.
How to improve your margin
- Lower COGS — negotiate supplier prices or order quantities.
- Raise prices or add value so you can — a small price rise flows almost entirely to profit.
- Cut the leaks — payment fees, returns and ad waste quietly erode net margin.
- Lift AOV so fixed costs spread over a bigger order — see the bundle tactics in our guides.
Calculate it automatically
Working out net margin by hand — pulling COGS, fees, shipping and ad spend for every order — is slow and error-prone. ProfitVault computes gross and net margin for every order, product and time period automatically, so you always know your real profit, not just revenue.