What is Gross margin?

Gross margin tells a store owner which products actually make money once the cost of getting them is covered. A store can have strong sales and still struggle if margins are too thin to cover overhead.

Check gross margin per product, not just overall. Some items might sell well but barely break even, while others sell less but carry much better margins. Use this to decide pricing, which products to promote, and which ones to drop or renegotiate with suppliers.

Formula

Example

A candle shop sells a jar candle for $25. The candle, jar, wax, wick and packaging cost $10 to make or buy. Gross profit is $25 minus $10, which is $15. Gross margin is $15 divided by $25, which is 0.60, or 60 percent.

Common mistakes

• Confusing margin with markup, which uses cost as the base instead of revenue.
• Forgetting to include all product costs, such as packaging or inbound shipping, when calculating cost of goods sold.
• Using one blanket margin for the whole store instead of checking margin per product or variant.

Gross margin and SteadyShelf

SteadyShelf does not calculate gross margin, but knowing your margin per SKU helps you decide which items are worth reordering in larger quantities when SteadyShelf flags them for restock.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

Cost of goods sold · GMROI · Inventory valuation · Sell-through rate · Carrying cost

Full inventory glossary

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