Profit margin is the percentage of revenue that remains as profit after subtracting costs. It measures how efficiently your store turns sales into actual earnings.
Profit margin is the percentage of revenue that remains as profit after subtracting costs. It measures how efficiently your store turns sales into actual earnings.
Profit Margin = (Revenue − Costs) ÷ Revenue × 100 Profit margin tells you how many pence of every pound in revenue you actually keep. A 30% profit margin means you keep 30p from every £1 of sales after costs. There are different types of profit margin depending on which costs you include: gross margin considers only COGS, while net margin accounts for all expenses. For ecommerce sellers, tracking margin at the product level reveals which items drive profit and which drag it down.
Profit Margin = (Revenue − Costs) ÷ Revenue × 100 You sell a jacket for £80. The product costs you £30 (COGS), and you spend £10 on ads to acquire that sale. Your profit margin is (£80 − £40) ÷ £80 × 100 = 50%. You keep £40 from this sale before fixed overheads.
Revenue alone is misleading. A store doing £100k per month with 5% margins earns less than one doing £30k at 25% margins. Profit margin is the metric that separates growing businesses from busy ones that never make money.
Confusing markup with margin — a 100% markup is only a 50% margin
Calculating margin on a subset of costs and thinking the number represents true profit
Ignoring transaction fees, payment processing fees, and platform costs
StoreLyst calculates real profit margin per product, per order, and store-wide by pulling in COGS, ad spend, and transaction fees automatically. You see true margins in real time, not estimates.
Learn more about P&L Reporting →A healthy net profit margin for ecommerce is typically between 10% and 20%. Gross margins vary widely by niche, but most successful online stores aim for 40–70% gross margin to leave enough room for marketing and operating costs.
Margin is calculated as a percentage of the selling price, while markup is calculated as a percentage of the cost price. A product that costs £50 and sells for £100 has a 50% margin but a 100% markup. They describe the same profit differently.
Always calculate margin excluding VAT. VAT is collected on behalf of the government and is not your revenue. Including it inflates your margin and gives you a false picture of profitability.
The three levers are: reduce COGS by negotiating with suppliers or buying in bulk, increase average order value through bundling or upsells, and reduce ad spend per acquisition by improving conversion rates and targeting.
Stop calculating in spreadsheets. Get real-time profit margin tracking for your Shopify store.