Net Profit Margin
Definition
Net profit margin is the percentage of revenue that remains as profit after deducting all operating expenses, taxes, and cost of goods sold.
Good or Bad?
Good when it’s healthy and consistent.
Bad if it’s low, inconsistent, or decreasing, as it signals potential issues with pricing, costs, or operations.
Why does it matter?
It shows how efficiently your store turns sales into actual profit.
A high margin means you’re not just selling, you’re growing a sustainable business.
Common Mistakes
- Ignoring hidden costs like shipping, refunds, or platform fees
- Focusing only on revenue and not profit
- Misclassifying expenses when calculating manually
How to Improve It
- Reduce product costs or find better suppliers
- Use dynamic pricing strategies based on demand and customer segmentation
- Track real-time profit data using specialized plugins
Recommended Plugin
Cost of Goods Sold (COGS): Cost & Profit Calculator for WooCommerce
This plugin calculates profit margins directly in your WooCommerce store. It accounts for product cost, selling price, discounts, and shipping, giving you real-time insights into your true profits.
Real-World Example
You sell a product for $50. After deducting $30 in costs and $5 in fees, your net profit is $15.
Your net profit margin is 30 percent. Monitoring this over time helps you decide which products are worth promoting.
Related Terms
- Gross Profit
- Revenue
- Return on Investment (ROI)
- Cost of Goods Sold (COGS)
FAQs
How is net profit margin different from gross profit margin?
Gross profit margin excludes operating expenses, while net profit margin includes them.
What is a good net profit margin for an online store?
It varies by industry, but a margin of 10 to 20 percent is often considered healthy for eCommerce.
Can I calculate net profit margin automatically in WooCommerce?
Yes, using plugins like the COGS calculator, you can track profit margins directly in your product reports and orders.
