Gross Profit Margin
Definition
Gross Profit Margin is the percentage of revenue that exceeds the cost of goods sold (COGS).
It shows how efficiently a store is producing and selling products compared to the cost it takes to make or source them.
Formula:
(Revenue – COGS) ÷ Revenue × 100
Good or Bad?
Good?
- A high margin means the store retains more profit from each sale
- Shows strong control over production or sourcing costs
- Allows more flexibility in marketing, discounting, or reinvestment
Bad?
- A low margin can indicate pricing issues or high costs
- Leaves little room for marketing or operational expenses
- Often unsustainable in the long term
Why does it matter?
Gross Profit Margin is a direct indicator of how profitable your products are before factoring in other business expenses.
It helps you understand which products are worth promoting and which ones need cost adjustments.
It’s also key when planning discounts, bundling, or scaling.
Common Mistakes
- Confusing gross profit margin with net profit margin
- Not factoring in hidden COGS like packaging or shipping fees
- Applying discounts without knowing the margin impact
- Ignoring low-margin products that are popular but eat into profits
How to Improve It?
- Negotiate better deals with suppliers
- Bundle low-margin items with high-margin ones
- Raise prices where justified by demand or quality
- Reduce unnecessary costs in sourcing, production, or shipping
Recommended Plugin
Cost of Goods Sold for WooCommerce by WPFactory
Tracks COGS for each product and automatically calculates your profit margins in real-time, giving you insights on what’s actually making money.
Real-World Example
An online electronics store found its most popular accessory bundle had a gross margin of only 8%.
After repackaging it with a different supplier, the margin improved to 22% while maintaining the same retail price.
Related Terms
- Net Profit Margin
- Revenue
- Markup
- Operating Profit
FAQs
What is a good gross profit margin for eCommerce?
Typically, 30% to 50% is healthy for most stores, but it varies by industry.
Is gross profit margin calculated per product or store-wide?
Both. You can calculate it for each product or for the overall business to identify areas for improvement.
Why does my gross margin vary month to month?
It can fluctuate due to changes in product mix, supplier pricing, discount campaigns, or shipping costs.
