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E-commerce Margin
pricingThe percentage of the selling price that represents profit. Unlike markup, margin is calculated as a percentage of revenue, not cost.
Definition
Margin measures how much of each dollar of revenue you keep as profit. A 40% margin means that for every $1 in sales, $0.40 is profit and $0.60 covers costs. Margin is the standard way businesses report profitability because it directly relates profit to revenue, making it easy to compare across products, companies, and industries.
The critical distinction between margin and markup trips up many business owners. A 50% markup produces a 33.3% margin, not a 50% margin. This difference compounds quickly at scale: a business owner who confuses the two might think they have healthy profits when they are actually underpricing their products significantly.
When analyzing your business, you will encounter several types of margin: gross margin (revenue minus direct costs), operating margin (after operating expenses), and net margin (after all expenses including taxes). Each tells a different story about your financial health, and tracking all three over time reveals where money is being consumed in your business.
Formula
Margin % = ((Selling Price - Cost) / Selling Price) x 100 Example
If you sell a product for $80 that costs $50 to make, your margin is (($80 - $50) / $80) x 100 = 37.5%. Your markup on the same product would be 60%.
Related Terms
Markup
pricingThe percentage added to the cost of a product or service to determine its selling price. Markup is expressed as a percentage of cost, not of the final price.
Gross Margin
profitabilityThe percentage of revenue remaining after subtracting the direct costs of producing goods or services (COGS). It measures production efficiency before operating expenses.
Net Margin
profitabilityThe percentage of revenue that remains as profit after all expenses, including operating costs, interest, taxes, and depreciation, have been deducted.
Operating Margin
profitabilityThe percentage of revenue remaining after deducting all operating expenses, but before interest and taxes. It measures the profitability of core business operations.
Put It Into Practice
Use these calculators to apply margin to your own numbers.
Markup vs Margin Calculator
Convert between markup and margin instantly.
Open calculator →Profit Margin Calculator
Calculate gross, operating, and net profit margins.
Open calculator →Gross vs Net Margin Calculator
Compare gross margin, operating margin, and net margin side by side to see where your profits go.
Open calculator →