Ecommerce Profit Margin Formula Explained
Use these formulas to evaluate your offer economics before scaling ad spend or lowering price.
Net Profit
Net Profit = Selling Price - Product Cost - Shipping Cost - Platform Commission - Ad Cost - Other Costs
Example: 50 - 12 - 6 - 5 - 10 - 2 = 15
Gross Profit & Gross Margin
Gross Profit = Selling Price - Product Cost (COGS)
Gross Margin (%) = (Gross Profit / Selling Price) x 100%
Example: Selling price 50 and product cost 20 → gross profit 30 → gross margin 60%.
Net Profit Margin
Net Profit Margin (%) = (Net Profit / Selling Price) x 100%, where Net Profit subtracts shipping, platform or payment fees, optional ad spend, and other costs from selling price after COGS.
Min revenue ROAS (order-level guardrail)
Min revenue ROAS ≈ Selling Price / Contribution Before Ads, where Contribution Before Ads = Selling Price - Product Cost - Shipping - Commission - Other Costs. Compare cautiously to ROAS reported in ad platforms (attribution differs).
Example: Selling price 50, contribution before ads 25 → guardrail ≈ 2.00x revenue per dollar of contribution buffer before ads; use alongside platform metrics.
Why formulas matter
Formulas keep your pricing strategy objective. If your margin is too thin, small increases in return rate or ad CPM can erase profit quickly.
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