Gross Margin
Gross Margin is the percentage of revenue retained after subtracting the direct cost of goods sold. It is calculated by subtracting COGS from revenue, dividing by revenue, and multiplying by 100. Gross margin shows how efficiently a business produces or sources its products before accounting for operating expenses.
Gross Margin Calculator
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Gross Profit
$40,000.00
revenue−cogsGross Margin
40.0%
((revenue−cogs)revenue)×100How to Calculate Gross Margin
Why Gross Margin Matters
Gross margin is the first line of defense for profitability because it reveals whether your core product economics work before overhead enters the picture. A declining gross margin signals rising production costs, excessive discounting, or unfavorable product mix shifts that need immediate attention. Healthy gross margins give you room to invest in marketing, operations, and growth while maintaining profitability.
Industry Benchmarks
What is a good Gross Margin? Based on industry benchmarks, a Gross Margin considered low is under 30%, average is 30% - 50%, and good is 50%+. These figures vary by industry, product category, and business model, so use them as directional guidance rather than hard targets.
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Ecommerce Profit Margin
Ecommerce Profit Margin is the percentage of revenue that remains as profit after subtracting all costs including cost of goods sold, shipping, platform fees, advertising, and operating expenses. It tells you how much of every dollar in sales your business actually keeps. Profit margin is the ultimate measure of business efficiency.
Break-Even ROAS
Break-Even ROAS is the minimum return on ad spend required to cover all your costs and avoid losing money on advertising. It is calculated by dividing 1 by your profit margin as a decimal. Any ROAS above your break-even point means your ads are generating actual profit.
Cost of Goods Sold (COGS)
Cost of Goods Sold is the total direct cost of producing or purchasing the products a business sells during a specific period. It includes raw materials, manufacturing labor, and any other costs directly tied to production. COGS is subtracted from revenue to calculate gross profit and is a fundamental component of every profitability metric.
Average Order Value (AOV)
Average Order Value is the mean dollar amount spent each time a customer places an order on your store. It is calculated by dividing total revenue by the number of orders over a given period. AOV is one of the simplest yet most impactful levers for growing revenue without acquiring new customers.
Customer Lifetime Value (CLV)
Customer Lifetime Value is the total revenue a business can expect from a single customer account over the entire duration of their relationship. It combines purchase frequency, average order value, and customer lifespan into one forward-looking metric. CLV helps you understand the long-term worth of acquiring and retaining each customer.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost is the total amount of money spent on marketing and sales to acquire a single new customer. It includes all advertising spend, marketing salaries, tools, and overhead divided by the number of new customers gained during that period. CAC is one of the most important unit economics for any ecommerce business.
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