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Cogs margin3/10/2023 ![]() ![]() Gross margin tells you whether your e-commerce store is making a profit on each product that you sell. So if gross margin is not your final profit – why does it matter so much? If you have a very small gross margin, therefore, you need a high level of revenue to be able to pay all of these and still make a profit. It all has to come out of your gross margin. Out of that gross profit of $50, you now have to meet all the other expenses of running your e-commerce business. This is not your final profit: you still have overhead expenses to cover, but it’s a measure of profitability nonetheless, and a critical one at that. ![]() Your gross profit on each sale, therefore, is $50. Each unit costs on average $100 at wholesale, including shipping costs, and you can sell to your customers at $150. Gross Margin Rate = (Gross Margin / Revenue ) * 100Īs an example, suppose you buy furniture wholesale from a supplier in Asia and ship it to the US. In this case, it’s known as the “gross margin rate”: Typically, gross margin is quoted as a percentage of revenue. However, marketing expenses, staff costs, and other operating expenses are not included in COGS. Gross Margin = Revenue – Cost of Goods Sold (COGS).ĬOGS includes the purchase value of your product, as well as any other costs that directly relates to your product such as shipping, import duties and warehousing. A lower gross margin or gross margin rate means that you make less profits with each unit sold. A higher gross margin or gross margin rate means that you have a highly profitable business. Gross margin is a metric that measures your profits as a share of revenue. ![]() So let’s dive in what Gross Margin is, how to look at it and how you can improve it. After all, would you reveal how profitable your e-commerce store is to random strangers on the internet? Gross margin is one of the key metrics for e-Commerce businesses, and one of those metrics that businesses tend to be sensitive about. ![]()
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