Profit Margin Formula: Gross vs Net
Margin Guide
Master gross and net profit margin formulas, break-even ROAS, and how margin drives LTV and advertising decisions.
The Profit Margin Formula
Gross: Profit = Revenue - COGS. Net: Profit = Revenue - All Costs.
Revenue minus costs. Gross profit = after COGS; net = after all expenses.
Total sales (or net revenue after refunds). Same period as profit.
Percentage of revenue that is profit. Use for ROAS and LTV.
Quick Example
Revenue $100,000, COGS $55,000. Operating costs $30,000.
Gross margin = (($100k - $55k) ÷ $100k) × 100 = 45%. Net margin = (($100k - $55k - $30k) ÷ $100k) × 100 = 15%.
Break-even ROAS at 45% gross margin = 1 ÷ 0.45 ≈ 2.22x.
Track Margins at Product and Order Level
StoreRadar calculates gross margin for every product and order so you can see exactly where margin is strong or weak.
Profit Margin Formula Variations
Gross, net, operating, and contribution margin
Standard ecommerce margin. COGS only.
After COGS, operating expenses, interest, taxes.
Excludes interest and taxes; includes marketing, rent, salaries.
Useful for pricing and break-even by product.
Multiply by volume for total gross profit.
Worked Examples
Step-by-step profit margin calculations
Gross Profit Margin
Last month revenue $72,000, COGS $39,600.
- 1 Gross Profit = $72,000 - $39,600 = $32,400
- 2 Gross Margin = ($32,400 ÷ $72,000) × 100
- 3 Gross Margin = 45%
Gross profit margin is 45%.
45 cents of every dollar of revenue is gross profit before operating expenses. Break-even ROAS = 1 ÷ 0.45 ≈ 2.22x.
Net Profit Margin
Revenue $72,000. COGS $39,600. Operating expenses $18,000. Other/interest $1,200.
- 1 Gross Profit = $72,000 - $39,600 = $32,400
- 2 Operating Profit = $32,400 - $18,000 = $14,400
- 3 Net Profit = $14,400 - $1,200 = $13,200
- 4 Net Margin = ($13,200 ÷ $72,000) × 100 = 18.3%
Net profit margin is 18.3%.
After all costs, 18.3% of revenue is net profit. Track both gross and net to see where margin is lost.
Break-Even ROAS from Margin
Your gross margin is 40%. What ROAS do you need to break even on ad spend?
- 1 At break-even, Ad Spend = Gross Profit from those sales
- 2 Gross Profit = Revenue × Margin = Revenue × 0.40
- 3 ROAS = Revenue ÷ Ad Spend. Break-even when Revenue = Ad Spend ÷ Margin
- 4 So ROAS = 1 ÷ Margin = 1 ÷ 0.40 = 2.5x
You need at least 2.5x ROAS to break even on advertising.
Below 2.5x you lose money on ads. Target above 2.5x for profit; 3–4x often sustainable.
Product Mix and Blended Margin
Product A: 50% margin, 60% of revenue. Product B: 30% margin, 40% of revenue.
- 1 Blended margin = (Margin_A × Share_A) + (Margin_B × Share_B)
- 2 Blended = (0.50 × 0.60) + (0.30 × 0.40) = 0.30 + 0.12
- 3 Blended gross margin = 42%
Store-wide gross margin is 42%.
Selling more of Product A (higher margin) improves blended margin; more of B lowers it.
Common Profit Margin Mistakes
Errors that distort margin and decisions
Mixing Gross and Net
Calling gross margin 'profit margin' or comparing your net margin to someone else's gross.
Always specify gross vs net. Use gross for product and ROAS; use net for overall business health.
Excluding Costs from COGS
Forgetting packaging, inbound shipping, or duties in COGS, which overstates margin.
COGS = all direct costs to get product to saleable state. Include product cost, inbound freight, packaging.
Including One-Off Items
Basing margin on a month with a big one-time expense or windfall.
Use normalized or trailing figures for net margin. Look at gross margin by product/order for consistency.
Ignoring Blended Margin
Assuming store margin is the average of product margins instead of revenue-weighted.
Blended margin = Σ(Product Margin × Revenue Share). High-volume, low-margin products drag down the average.
How to Track Profit Margin in WooCommerce
Three ways to monitor gross and net profit margin for your WooCommerce store
Option 1: Spreadsheets
Export orders and product costs from WooCommerce to calculate gross and net margin manually. Requires COGS in a spreadsheet and regular updates to stay current.
- Full control
- No additional cost
- Time-consuming
- Quickly outdated
- No product-level view
Option 2: WooCommerce Plugins
Cost and margin plugins can add COGS fields to products and show basic margin reports. Quality and reporting depth vary by plugin.
- Integrates with WooCommerce
- Some automation
- Plugin quality varies
- Limited segmentation
- May conflict with other plugins
Option 3: StoreRadar
StoreRadar calculates gross profit margin automatically for every product, order, and customer segment—updated in real-time so you always know where margin is strong or weak.
- Automatic calculation
- Product and order-level margins
- Real-time updates
- Segment comparison
- Monthly subscription
Related Formulas
How profit margin connects to other metrics
| Formula | Calculation | Relationship |
|---|---|---|
| Gross Margin (detailed) | ((Revenue - COGS) ÷ Revenue) × 100 | Same as gross profit margin; see gross-margin formula page for margin vs markup |
| Break-Even ROAS | 1 ÷ Gross Margin | Margin sets the ROAS you need to profit on ads |
| Markup | ((Price - Cost) ÷ Cost) × 100 | Markup and margin express same profit differently |
| LTV | AOV × Margin × Frequency × Lifespan | Margin is a direct input to profit-based LTV |
| Contribution Margin | ((Revenue - Variable Costs) ÷ Revenue) × 100 | Tighter than gross margin; includes variable ops |
Frequently Asked Questions
Common questions about profit margin
Gross profit margin = ((Revenue - COGS) ÷ Revenue) × 100. Net profit margin = ((Revenue - All Costs) ÷ Revenue) × 100. Both express profit as a percentage of revenue. Gross uses only product costs; net uses all operating expenses, taxes, and interest.
Gross margin is profit after COGS (product costs only). Net margin is profit after COGS, operating expenses (marketing, rent, salaries), and other costs. Gross margin is always higher than net margin. A 50% gross margin with 30% operating costs leaves 20% net margin.
Gross margins of 40–60% are common for healthy ecommerce. Net margins vary widely: 5–15% is typical after marketing and operations. Dropshipping often has 15–25% gross; private label can reach 50–70% gross. Compare to your industry and track trends over time.
Break-even ROAS = 1 ÷ Gross Margin. At 40% margin you need 2.5x ROAS to break even. Higher margin means you can profit at lower ROAS and scale ads more. Net margin shows whether the business is profitable after all costs including ad spend.
Margin is always (Profit ÷ Revenue) × 100, so revenue is the denominator. Gross profit = Revenue - COGS. Net profit = Revenue - All Costs. The formula is the same; what you subtract determines gross vs net margin.
Raise prices, reduce COGS (suppliers, packaging), or cut operating expenses. Improve mix (sell more high-margin products). Reduce discount depth. Track margin by product and segment to focus on the biggest levers.
Track Gross Margin for Every Product
StoreRadar calculates gross profit margin for every SKU and order so you can optimize mix and pricing with confidence.
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