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 profit $60.00 · net profit $39.00 → net margin 39.0%
"All other costs" is shipping, payment fees, ads, returns and expenses on the same revenue. For a per-order breakdown of each one, use theShopify profit calculator.
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.