Margin

Understanding Margin

Gross margin is the most commonly referenced margin metric in e-commerce. If you sell a product for $100 and it costs you $40 to produce and ship (cost of goods sold), your gross margin is 60%. This means $60 of every $100 in revenue is available to cover operating expenses like marketing, platform fees, salaries, and overhead.

Net margin goes further by subtracting all operating expenses from revenue. A store with 60% gross margins might have 10-15% net margins after accounting for marketing spend, Shopify subscription and transaction fees, app subscription costs, labor, and other overheads. Net margin is the true measure of profitability — it tells you how much of each revenue dollar you actually keep.

For Shopify merchants, common margin pressures include rising ad costs (the largest variable expense for many DTC brands), increasing shipping costs, Shopify payment processing fees (2.4-2.9% + $0.30 per transaction on basic plans), app subscription costs, and competitive pricing pressure. Understanding your margin structure at the product level reveals which products are truly profitable and which are barely breaking even after all costs.

Protecting margins requires discipline. Common strategies include negotiating better supplier terms as volume increases, optimizing shipping costs through carrier negotiation or fulfillment partner comparison, reducing return rates through better product descriptions and sizing guides, increasing average order value to spread fixed costs across more revenue, and being strategic about discounting rather than reflexively offering markdowns.