Gross vs net profit margin: what each one tells an online seller
Sellers often say a product has a "50% margin" without saying which margin. Gross margin and net margin answer different questions, and mixing them up is one of the easiest ways to think a shop is profitable when it is not.
Gross profit margin
Gross profit is what is left from sales after the direct cost of the products you sold.
Gross profit = revenue − cost of goods sold
Gross margin % = gross profit ÷ revenue × 100
Gross margin tells you whether your pricing covers your product cost with room to spare. It is a product and pricing number.
Net profit margin
Net profit is what is left after everything: product cost, marketplace and payment fees, shipping you pay, ads, software, packaging, and other running costs.
Net profit = revenue − all costs and fees
Net margin % = net profit ÷ revenue × 100
Net margin tells you whether the business is actually making money. It is the number that pays you.
Worked example: one month
Illustrative figures only.
| Line | Amount |
|---|---|
| Revenue (sales plus shipping charged) | $4,000 |
| Cost of goods sold | −$1,400 |
| Gross profit | $2,600 (65% gross margin) |
| Marketplace and payment fees | −$420 |
| Shipping labels and packaging | −$560 |
| Ads | −$300 |
| Software, subscriptions, and supplies | −$120 |
| Net profit | $1,200 (30% net margin) |
A 65% gross margin sounds excellent, but more than half of that gross profit went to fees, shipping, ads, and tools. Pricing decisions based on the 65% alone would overestimate what each sale really earns.
Which one should you watch?
- Use gross margin to compare products and set prices. If a product's gross margin is thin, no amount of volume fixes it. Our pricing guide walks through it.
- Use net margin to judge the business month to month. If net margin shrinks while gross margin holds steady, look at fees, shipping, and ad spend.
- Compare channels on net, since fees differ. See Etsy fees explained, Amazon FBA fees, and Shopify profit margin.
Common mistakes
- Calculating margin on retail price but leaving out shipping you pay.
- Forgetting refunds, which reduce revenue but often not costs. See tracking returns and refunds.
- Confusing markup with margin. A 100% markup (cost $10, price $20) is a 50% gross margin, not 100%.
- Not setting aside money for income tax before calling net profit "yours". See quarterly estimated taxes.
Track both margins each month in a simple P&L and the trend will tell you more than any single month. Educational content only, not financial or tax advice.
More seller guides
- Etsy fees explained: what Etsy actually takes from each sale
- How to calculate your Shopify profit margin (and what a good one looks like)
- Amazon FBA fees in 2026: what you pay and how to estimate it
- Quarterly estimated taxes for online sellers: a plain-English guide
- How to calculate COGS (cost of goods sold) for your online store
- Reorder point formula for small online shops (with safety stock examples)
- How to track returns and refunds as an online seller (and calculate refund rate)
- How to make a simple monthly profit and loss statement for your online shop
- What to include on an invoice: a checklist for small sellers and makers
- How to price handmade products: a simple formula that covers fees and pays you
- Break-even point for online sellers: formula, example, and how to lower it
- Inventory turnover ratio: how fast your stock actually sells
- Landed cost: the true cost of a product once it reaches your shelf
- Markup vs margin: why a 50% markup is not a 50% margin
SellerSheetKit is not affiliated with Etsy, Shopify, or Amazon. Fee figures are summarized from official sources on the date above and can change; verify against your seller account. Educational content only — not tax, legal, or accounting advice.