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What Is a Good Ecommerce Profit Margin?

There is no single good ecommerce profit margin. The right margin depends on product category, COGS, AOV, fulfilment costs, acquisition costs, repeat purchase behaviour and the fixed-cost structure of the business. What matters more is knowing which margin you are looking at, because the word covers four different numbers.

Gross margin

Gross margin = (net revenue − COGS) ÷ net revenue

Net revenue is gross sales minus discounts, refunds and VAT. Gross margin includes only the cost of the goods themselves. It excludes shipping, packaging, payment fees, advertising and every fixed cost, so it describes how attractive the product is on paper, not what the business keeps.

Contribution margin

Contribution before advertising = net revenue − COGS − shipping − packaging − payment fees − other variable costs

Contribution after advertising = contribution before advertising − advertising

Contribution margin expresses that as a percentage of net revenue. It counts every variable cost caused by selling and fulfilling the order, which is why it is the figure ProfitSimple reports on the dashboard.

The two versions answer different questions and should never be mixed silently. Contribution before advertising is your acquisition budget per order. Contribution after advertising is what the order left behind once you paid to win the customer. Note the distinction between CPA — what you pay for one order — and CAC, what you pay to acquire one new customer; they only match when every order comes from a new customer.

Operating margin

Operating margin subtracts operating costs — salaries, software, rent, agencies — from contribution. It shows whether the business as an operation covers its own running costs, before interest and tax.

Net profit margin

Net profit margin is what remains after everything, including interest and tax, divided by net revenue. It is the accountant's number and the slowest to react, so it is a poor daily decision tool.

What each margin includes

What each ecommerce margin includes
GrossContributionOperatingNet
COGSYesYesYesYes
Shipping & packagingNoYesYesYes
Payment feesNoYesYesYes
AdvertisingNoAfter ads onlyYesYes
Fixed operating costsNoNoYesYes
Interest & taxNoNoNoYes

Why a high gross margin can still produce a weak business

From net revenue to contribution after advertising
LineAmount
Net revenue€100.00
COGS− €30.00
Gross profit€70.00
Shipping− €7.00
Packaging− €2.00
Payment fees− €3.00
Other variable costs− €3.00
Contribution before advertising€55.00
Advertising− €35.00
Contribution after advertising€20.00

Gross margin here is 70%, contribution margin before advertising is 55%, and contribution margin after advertising is 20%. A 70% gross margin is not a 70% profit margin, and fixed costs still have to be paid out of the €20.00 that remains.

So what margin should an ecommerce brand focus on?

Each margin answers a different question:

  • Gross margin — is the product economically attractive before fulfilment and acquisition?
  • Contribution margin — how much remains after the variable economics of selling the order?
  • Net profit — is the entire company profitable after fixed operating costs?

For paid-acquisition-heavy ecommerce, contribution margin is the most useful day to day: it defines how much room exists for acquisition and profit. Check yours per order with the Contribution Margin Calculator, translate it into a spending ceiling with the Target CPA Calculator, and run a full period through the Ecommerce Profit Calculator.

How to improve ecommerce contribution margin

  • improve product margin through sourcing, MOQs or pricing
  • increase AOV where variable costs do not rise proportionally
  • reduce fulfilment costs: packaging, carrier rates, shipping thresholds
  • reduce unnecessary discounting
  • improve payment economics by mix and processor terms
  • improve acquisition efficiency so CPA falls
  • increase repeat purchases where the category supports it

Calculate what your store actually keeps.

Enter one period of revenue and costs to see contribution profit, margin and profit per order.

Ecommerce Profit Calculator

Frequently asked questions

What is a good profit margin for an ecommerce store?
There is no single answer. The margin that works depends on your product category, COGS, average order value, fulfilment costs, acquisition cost, repeat purchase rate and fixed-cost base. A high-AOV brand with repeat purchases can operate profitably on a much thinner first-order margin than a one-off low-AOV product.
What is the difference between gross margin and contribution margin?
Gross margin subtracts only COGS from net revenue. Contribution margin also subtracts the other variable costs of selling and fulfilling the order: shipping, packaging, payment fees and any other per-order costs. Contribution margin before advertising is what you have available to spend on acquisition and profit.
Should advertising be included in contribution margin?
State which one you mean. Contribution before advertising shows how much each order leaves for acquisition. Contribution after advertising subtracts acquisition cost and shows what the order actually left the business. ProfitSimple always labels which of the two it is showing.
Is VAT part of your margin?
No. VAT collected from customers is remitted to the tax authority, so it is removed before revenue is measured. Calculating margin on a VAT-inclusive price overstates every margin figure below it.
Why is my net profit margin so much lower than my gross margin?
Because gross margin ignores shipping, packaging, payment fees, refunds, advertising and every fixed cost. Those sit between gross profit and net profit, and in paid-acquisition ecommerce advertising is usually the largest of them.

Track your real margin automatically.

Connect Shopify and ProfitSimple keeps your contribution margin up to date as product mix, costs and AOV change.

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