Gross margin vs net profit for Shopify stores
A store can have a healthy gross margin and still lose money. That's why it helps to know exactly what each number measures, and which one tells you what you actually kept.
Gross margin: what your products earn
Gross margin answers one question: after paying for the products you sold, how much of each sale is left?
Gross profit = sales − cost of the products sold
Gross margin = gross profit ÷ sales, shown as a percentage
If you sold $10,000 of products that cost you $4,000, your gross profit is $6,000 and your gross margin is 60%.
Gross margin only looks at product costs. It ignores shipping, payment fees and everything else, which makes it the right number for judging your pricing and your suppliers. It's the wrong number for judging whether the business is making money.
Net profit: what you actually kept
Net profit starts where gross profit ends and keeps subtracting:
Net profit = sales − product costs − shipping − payment fees − ad spend
Using the same $10,000 month:
| Amount | |
|---|---|
| Sales | $10,000 |
| Product costs | −$4,000 |
| Shipping you paid | −$1,200 |
| Payment fees | −$350 |
| Ad spend | −$1,000 |
| Net profit | $3,450 |
The gross margin was 60%. The share of each sale you actually kept is 34.5%. That gap is where stores get surprised.
Which one to watch
Watch both, for different reasons.
- Gross margin tells you whether your prices and product costs make sense. If it's falling, a supplier raised prices or you've been discounting too hard.
- Net profit tells you whether the business is working. If it's falling while gross margin holds steady, look at shipping and fees.
Discounts are worth a special mention. A 20% discount on a product with a 40% gross margin gives away half the profit on that sale before shipping and fees are counted.
Getting the numbers right
Both numbers depend on knowing what each product costs you. If some products have no cost entered, your margin is only telling you about the ones that do.
In Shopify, each product variant has a Cost per item field. Filling it in is the first step to any real profit figure.
See both without the spreadsheet
Nesvo is a free Shopify app that shows your gross margin and your net profit side by side. It pulls your orders and your Shopify product costs automatically, takes out shipping, payment fees and ad spend, and tells you plainly when costs are missing instead of guessing. On paid plans, it also shows what every discount in your email campaigns costs against your margin before it sends.