Gross margin
Gross margin is the share of the selling price left after the cost of the goods, expressed as a percentage of the price.
Updated
- Formula
- gross margin = (price − cost) ÷ price
- Also called
- gross profit margin, margin
Margin · profit ÷ price
66.8%
Markup · profit ÷ cost
200.9%
Worked example
A throw sells for $68.00 and costs $22.60.
($68.00 − $22.60) ÷ $68.00 = 66.8%
For every dollar of sales, about 67 cents remain after the goods are paid for.
Margin is not markup
The same product has a markup of 200.9%, because markup divides by cost and margin divides by price. A margin can never reach 100% unless the cost is zero. Confusing the two is the most common pricing mistake: adding 50% to cost gives a 33.3% margin, not 50%.
A margin depends on what you call cost
| Cost counted | Cost | Margin on $68.00 |
|---|---|---|
| Supplier price only | $21.40 | 68.5% |
| Plus packaging | $22.60 | 66.8% |
| Plus pick and pack and payment fees | $27.42 | 59.7% |
None of these is wrong. They answer different questions. The first two are gross margins; the third is closer to a contribution margin.
In Cogsy
Cogsy shows each variant’s margin on its total cost, which is the unit cost plus every cost you add on top. A variant with no unit cost has no margin, and you set the threshold under which a margin is flagged as low.
Questions
- What is a good gross margin for an online store?
- It depends on the category and on how much you spend to acquire and fulfil each order. The useful test is whether the margin covers fulfilment, fees, marketing and overhead with profit left, not whether it matches a benchmark.
- Why is my margin different in different tools?
- Usually because they subtract different costs. A margin on the supplier price alone is higher than one that also counts packaging, fulfilment and fees. Check what each figure includes before comparing them.
- Is margin calculated on cost or on price?
- On price. A percentage calculated on cost is markup.
Related
Glossary
MarkupMarkup is the amount added to cost to reach the price, as a percentage of cost. The formula, how to convert between markup and margin, and a conversion table.
Glossary
Gross profitGross profit is revenue minus the cost of the goods sold. The formula, a per-unit and a per-period example, and how it differs from gross margin and net profit.
Glossary
Contribution marginContribution margin is the price minus every cost that varies with a sale, including fulfilment and payment fees. The formula and a worked ecommerce example.
Feature
Missing cost and low-margin flagsA variant with no cost shows as missing, never as zero. Set a margin threshold and everything under it is flagged.