Gross margin = (Revenue − COGS) ÷ Revenue. It measures profit after direct product costs. Net margin = (Revenue − all expenses) ÷ Revenue. Gross margin is about product and pricing; net margin is about overall business profitability. Use gross margin to compare products and set prices; use net margin to see if the business is making money after everything.
What is Gross Margin?
Gross margin is the percentage of revenue left after deducting cost of goods sold (COGS). Formula: Gross margin % = (Revenue − COGS) ÷ Revenue. It shows how much each dollar of sales contributes after direct product costs. Use our free Gross Margin Calculator and Gross Profit Calculator to model your numbers.
What is Net Margin?
Net margin (net profit margin) is the percentage of revenue left after all expenses: COGS, operating expenses, marketing, taxes, etc. It's the bottom-line profitability of the business. For Shopify stores, our Shopify Profit Margin Calculator includes fees and payment processing to get closer to net.
Why Both Matter for Ecommerce
High gross margin with high operating costs can still mean low net margin. Use gross margin to decide which products to promote, how to price, and whether unit economics work. Use net margin to see if the business is sustainable and how much you can reinvest. For product-level analysis, use our Product Profitability Analyzer and tools hub.
FAQ
- What is the difference between gross margin and net margin?
- Gross margin = (Revenue − COGS) ÷ Revenue. It shows profit after direct product costs. Net margin = (Revenue − all costs including COGS, operating expenses, ads, taxes) ÷ Revenue. Gross margin is product-level efficiency; net margin is overall business profitability.
- When should I use gross margin vs net margin?
- Use gross margin to compare products, set pricing, and understand unit economics. Use net margin to see if the business is profitable overall after all expenses. For ecommerce, both matter: gross margin for product and pricing decisions, net margin for P&L and scaling decisions.
- What is a good gross margin for ecommerce?
- It varies by category. Many ecommerce brands aim for 50–70% gross margin. Lower margins require higher volume or strict cost control. Use our Gross Margin Calculator to model your numbers and compare products with the Product Profitability Analyzer.