How to calculate net margin in e-commerce?
Net margin = (Revenue - All costs) / Revenue × 100. Costs include: COGS, shipping, transaction, advertising, operational. A healthy e-commerce net margin is between 10% and 20%.
Detailed explanation
Net margin is the percentage of revenue that remains as profit after deducting absolutely all business costs. It's the ultimate profitability metric of an e-commerce store, more reliable than gross margin which only accounts for cost of goods. The full formula is: Net margin = (Revenue - COGS - Shipping - Transaction - Advertising - Operational) / Revenue × 100.
The five cost categories to integrate for an accurate calculation are: COGS (supplier purchase, import taxes, packaging), shipping (carriers, packaging, free returns), transaction (Stripe, PayPal, commissions), advertising (Meta, Google, TikTok, influencers), and operational (salaries, rent, SaaS, accounting, tools). Each category must be attributed to the correct period for a consistent calculation.
In e-commerce, a net margin between 10% and 20% is considered healthy. Below 5%, your business is fragile: a rise in ad costs, a regulatory change or a bad season can quickly turn it unprofitable. Above 20%, you have a comfortable margin to invest in growth, build reserves or improve your offer. Premium-positioned DNVB brands can reach 25-30%.
To improve your net margin, act on several levers: negotiate with suppliers to lower COGS, optimize your supply chain and packaging to reduce shipping costs, reduce CAC by optimizing campaigns, increase AOV with cross-sell and bundles, and rationalize operational costs. Tracking monthly net margin with a detailed P&L enables quickly identifying drifts and making the right decisions.
Concrete example
A store generates 200,000 EUR of revenue in October. Costs: COGS 90,000 EUR (45%), shipping 16,000 EUR (8%), transaction 5,000 EUR (2.5%), advertising 40,000 EUR (20%), operational 24,000 EUR (12%). Total: 175,000 EUR. Net profit: 25,000 EUR. Net margin = 25,000 / 200,000 × 100 = 12.5%. The store is profitable with a healthy margin in line with industry norms.
Related questions
What is the difference between gross and net margin?
Gross margin only deducts COGS. Net margin deducts all costs (COGS, shipping, transaction, advertising, operational). Only net margin indicates real profitability.
What net margin to target in e-commerce?
Between 10% and 20% for a healthy business. Premium DNVBs can reach 25-30%. Below 5%, the business is fragile to cost or conversion variations.
Should taxes be included in the calculation?
No. Net margin is calculated on revenue excluding taxes and costs excluding taxes. Corporate tax then applies to net profit to obtain the after-tax result.
How to quickly improve net margin?
Reduce CAC (biggest lever), negotiate COGS, increase AOV, optimize shipping. A 20% CAC reduction can double or triple net margin depending on structure.
Does Shopify show net margin?
No. Shopify only displays revenue and sometimes gross margin. To obtain real net margin, you need a dedicated tool that integrates all external and operational costs.
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