Profitability & Margins
Profit Margin
A general term for the percentage of revenue that becomes profit. Can refer to gross, operating, or net margin.
What is Profit Margin?
Profit margin is a broad term that describes what percentage of your revenue turns into profit. There are three main types:
- Gross margin: Revenue minus COGS
- Operating margin: Revenue minus COGS and operating expenses
- Net margin: Revenue minus all expenses
Which Profit Margin Should You Track?
For e-commerce sellers, all three matter, but net margin is the most important because it reflects your true bottom-line profitability after every cost is accounted for.
E-Commerce Profit Margin Benchmarks
Healthy e-commerce profit margins vary by industry:
- Fashion/apparel: 4-13%
- Beauty/cosmetics: 6-18%
- Electronics: 2-8%
- Home goods: 5-15%
Example
A store with 60% gross margin, 25% operating margin, and 12% net margin retains $0.12 of every dollar as profit.
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