What Is Gross Margin?

Gross margin is the percentage of revenue left after subtracting the direct costs required to fulfill a sale: product cost, shipping, and platform or payment fees. It is the core operating number in ecommerce because every important acquisition metric, from ROAS targets to discount tolerance, is downstream from margin.

The Formula

Gross Margin = (Revenue − COGS − Shipping − Platform Fees) ÷ Revenue × 100

Example: a product sells for €30. COGS is €9, shipping is €3, and Shopify Basic payment processing is 2.9% + €0.30, which equals €1.17 on this order. Gross profit is €30 − €9 − €3 − €1.17 = €16.83. Gross margin is 16.83 ÷ 30 × 100 = 56.1%.

What's a Good Gross Margin?

| Gross Margin | Reality Check | |-------------|---------------| | Below 20% | Very little room for ads, discounts, or mistakes | | 20% to 35% | Business can work, but acquisition must stay efficient | | 35% to 55% | Healthy range for many physical-product brands | | 55%+ | Strong position for scaling and promotional flexibility |

These bands assume physical-product ecommerce — digital products and print-on-demand operate on entirely different margin structures.

Gross margin matters because it sets the ceiling for what the business can spend elsewhere. If margin is 25%, the store cannot spend 30% of revenue on acquisition and expect the math to work. If margin is 60%, the business has options: more aggressive bidding, more promotional testing, and more resilience when return rate or CPMs worsen.

The trap is using a simplified version of gross margin that excludes platform fees or shipping subsidies. A seller who reports 50% margin from price minus COGS alone may actually be operating closer to 38% once the Shopify 2.9% + €0.30 fee and real outbound shipping are included. That mistake then corrupts break-even ROAS, max CAC, and pricing decisions.

This is also why gross margin should be tracked per channel or per platform when costs differ materially. The same SKU can look healthy on one storefront and weak on another without any change in demand.

Common Mistakes

• Calculating margin from revenue minus COGS only. On a typical Shopify order this can overstate margin by 8 to 15 percentage points once shipping and processing fees are included.
• Confusing gross margin with net margin. Gross margin does not include ad spend, software, payroll, or agency retainers.
• Failing to recalculate when supplier cost changes. A 10% increase in COGS can compress a mid-30s margin product into a range where paid acquisition becomes fragile.
• Ignoring platform differences. Selling the same item on Shopify versus Amazon FBA can swing margin sharply because Amazon adds 15% referral fee plus €3.50 fulfillment.

Related Tools

Product Profit Calculator shows gross and net profit side by side from your real numbers.

Break-Even ROAS Calculator converts margin into the minimum ad efficiency needed to avoid losses.

Related Terms

The next references that usually matter after this one are ROAS, CAC, and LTV.