Ecommerce gross margin, an essential part of ecommerce accounting, is the percentage of revenue retained by an online store after subtracting the costs directly associated with producing and delivering goods. It’s a key metric for ecommerce businesses to assess whether their pricing strategies are effective and if they’re controlling their production costs. For ecommerce brands, especially those operating on platforms like Shopify or Amazon, understanding gross margin is essential for making informed decisions about scaling, marketing, and product offerings.
In ecommerce, gross margin can fluctuate depending on the sales channel, product type, and cost structure. For example, a company selling premium-priced products may have a higher gross margin than a low-cost provider or reseller. Selling on different channels can also impact your gross margin, as Amazon seller costs are generally included above the gross margin line (reducing gross profit), while direct to consumer marketing costs (for example, via Shopify) are below the gross margin line. Ecommerce businesses can improve gross margin by reducing supplier costs, optimizing their shipping processes, and increasing product prices without losing customers. Regularly tracking gross margin ensures that your online store remains profitable and can sustain long-term growth.
Gross Margin Formula
Gross margin = (Net Sales - COGS) / Net Sales * 100
The gross margin is calculated taking your net sales and subtracting the COGS, then dividing that by the net sales multplied by 100.