Profit margin tells you how much of every dollar of revenue you actually keep after costs. It's the single clearest measure of whether a product — or a whole store — is worth selling.
The good news: the math is simple, and once you know it you can price with confidence. Here's the formula, a worked example, and the benchmarks that matter.
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All-in cost per unit
Profit margin (%) = (Sale price − Cost) ÷ Sale price × 100. If you sell an item for $30 that costs you $12 all-in, your gross profit is $18 and your margin is 18 ÷ 30 = 60%.
The key is that “cost” should be everything it takes to deliver the product: the product itself, shipping, packaging, payment and marketplace fees. Leave one out and your margin will look healthier than it really is.
Markup measures profit against cost, not price: Markup (%) = (Price − Cost) ÷ Cost × 100. The same $30 item with $12 cost has a 60% margin but a 150% markup.
Confusing the two is one of the most common pricing mistakes. If you set prices from a “60% markup,” you'll earn far less margin than you think.
It varies by model. Healthy e-commerce and retail businesses often run 40–60% gross margin and 10–20% net margin after operating costs. Below ~10% net leaves little room for ad spend, returns, or a bad month.
Rather than chase a universal number, aim to (1) know your true margin per product, and (2) protect enough of it to fund growth. The calculator above does the first part instantly.
It depends on your model, but many healthy e-commerce businesses run a 40–60% gross margin and a 10–20% net margin. Below about 10% net profit margin, there's little cushion for ads, returns, or cost increases.
No. Margin is profit as a percentage of the sale price; markup is profit as a percentage of cost. A 60% margin equals a 150% markup on the same item, so it's important not to mix them up when pricing.
Raise prices where the market allows, lower your landed cost (negotiate with suppliers, cut shipping/packaging waste), reduce marketplace and payment fees, and drop or reprice products whose margin is too thin to be worth selling.
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