Gross margin = (revenue - COGS) / revenue x 100Gross margin shows how much of each sale is left once the cost of the product is paid. That money, gross profit, has to cover everything else: shipping, fees, advertising, apps, staff and, finally, your profit.
For a store that grows with paid ads, gross margin decides how much you can spend to win a sale. That is why it pays to favor products with a high gross margin if you plan to sell through ads.
Margin is not the same as markup. Markup compares profit with cost, margin compares it with price. A product bought for 20 euros and sold for 40 has a 100% markup but a 50% margin.
- Raise prices where your brand, offer or bundle justifies it.
- Lower COGS through better supplier terms or larger orders.
- Sell more of your highest-margin products and feature them in your ads.
Common mistakes: confusing margin with markup when setting prices, and stopping at gross margin. A healthy gross margin can still hide a loss once shipping, fees and ads are paid, which is what contribution margin and net profit margin show.