Gross margin is the percentage of revenue remaining after subtracting the cost of goods sold. It shows how much money is left to cover operating expenses, marketing, and profit.
Gross margin is the percentage of revenue remaining after subtracting the cost of goods sold. It shows how much money is left to cover operating expenses, marketing, and profit.
Gross Margin = (Revenue − COGS) ÷ Revenue × 100 Gross margin sits between revenue and net profit on your income statement. It strips out direct product costs but leaves in everything else like ad spend, software subscriptions, and wages. A high gross margin gives you more room to invest in growth. A low gross margin means even small increases in overheads could push you into the red. It is the most commonly compared metric across ecommerce niches.
Gross Margin = (Revenue − COGS) ÷ Revenue × 100 Your store generates £20,000 in revenue this month, and your total COGS is £8,000. Your gross margin is (£20,000 − £8,000) ÷ £20,000 × 100 = 60%. This means 60p of every pound goes towards covering overheads and profit.
Gross margin tells you whether your pricing and sourcing strategy is viable before other costs come into play. If your gross margin is too thin, no amount of operational efficiency will make the business profitable.
Treating gross margin as profit — it does not account for marketing, rent, or salaries
Comparing gross margins across different niches without context
Forgetting to update COGS when supplier prices change, which silently erodes gross margin
StoreLyst tracks gross margin at the product, collection, and store level in real time. When your supplier costs change, update them once and all your margin calculations adjust instantly.
Learn more about P&L Reporting →Gross margin only subtracts COGS from revenue, while profit margin (net margin) subtracts all costs including marketing, operations, and taxes. Gross margin is always higher than net margin because it excludes more expenses.
Most successful ecommerce brands target 40–70% gross margin. Fashion and beauty tend to be at the higher end, while electronics and commoditised products sit lower. Below 30% makes it very difficult to run profitably after ads and overheads.
Yes. If your COGS exceeds your revenue, your gross margin is negative, meaning you lose money on every sale before any other expenses. This sometimes happens with aggressive discounting or when supplier costs spike unexpectedly.
Returns reduce your effective revenue while the COGS may already be incurred, which lowers gross margin. If the returned item cannot be resold, the COGS is a total loss. Tracking return rates by product helps identify gross margin leaks.
Stop calculating in spreadsheets. Get real-time gross margin tracking for your Shopify store.