What is Gross Margin?

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Gross Margin is the percentage of revenue that remains after subtracting the cost of goods sold (COGS). It measures how efficiently a business produces and sells its products relative to production or acquisition costs.

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Why Gross Margin matters?

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Gross margin reveals how much money is left to cover operating expenses, marketing, and profit after accounting for product costs. For ecommerce brands, a strong margin means greater flexibility to invest in customer acquisition and retention. Monitoring this metric helps assess pricing strategy, sourcing efficiency, and overall business health.

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How Gross Margin works?

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Gross margin is calculated using the formula: (Revenue – Cost of Goods Sold) ÷ Revenue × 100. If a brand sells $100,000 worth of products and its COGS is $60,000, the gross margin is 40%. Companies often track gross margin by product line or category to identify which areas drive the most profit.

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Example in ecommerce

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A DTC apparel brand sells shirts for $50 each, but each shirt costs $20 to produce and ship. That means a 60% gross margin per sale. The brand uses this margin to fund paid ads, customer service, and influencer partnerships while still maintaining profitability.

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Common mix-ups

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Gross margin is not the same as markup, which measures how much a product’s price exceeds its cost. It’s also different from net margin, which accounts for all expenses — including operations, taxes, and marketing — to show final profitability.

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Best practices

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• Aim for a consistent margin target across core products to maintain predictable profitability.
  
  
• Regularly review supplier costs, shipping fees, and packaging to protect margins from erosion.
  
  
• Use tiered pricing or premium product lines to increase overall gross margin.
  
  
• Track margin trends alongside marketing spend to identify when growth is becoming less efficient.
  
  
• Analyze gross margin by channel (e.g., DTC vs. wholesale) for better strategic decisions.
  
  

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Industry benchmarks

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• Typical ecommerce gross margins range from 40–60%, depending on product category.
  
  
• High-margin categories (e.g., beauty, digital products) can exceed 70%, while low-margin ones (e.g., electronics, grocery) may fall below 25%.
  
  
• Healthy, growing DTC brands often target 50%+ gross margin for long-term sustainability.
  
  

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Related terms

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Net Profit Margin

Cost of Goods Sold (COGS)