{"id":14397,"date":"2022-12-22T03:47:20","date_gmt":"2022-12-22T08:47:20","guid":{"rendered":"https:\/\/onecommerce.io\/blog\/?p=14397"},"modified":"2023-04-16T11:01:19","modified_gmt":"2023-04-16T15:01:19","slug":"ecommerce-profit-margins","status":"publish","type":"post","link":"https:\/\/onecommerce.io\/blog\/2022\/12\/22\/ecommerce-profit-margins\/","title":{"rendered":"6 Tactics To Increase Your Ecommerce Profit Margins"},"content":{"rendered":"

Lots of merchants like you place a strong emphasis on acquiring more leads and converting more sales. However, in order to scale up in the long run, you should know that you have another ultimate goal – increasing your <\/span><\/i>eCommerce profit margins<\/i><\/a><\/strong>.<\/span><\/i><\/p>\n

Therefore, in this article, we will show you 6 tactics on how to increase profit margin for your eCommerce business<\/span><\/i>.<\/span><\/i><\/p>\n

Let\u2019s dive right in!<\/span><\/i><\/p>\n

What Are ECommerce Profit Margins?<\/b><\/h2>\n

Profit margin is a profitability indicator used to measure how many cents of profit a company generates for every dollar of sales.<\/span><\/p>\n

While there are several types of eCommerce profit margins, when people are talking about \u2018<\/span>Profit Margin<\/b>\u2019, they usually refer to \u2018<\/span>Gross Profit Margin<\/b>\u2019, and \u2018<\/span>Net Profit Margin<\/b>\u2019.<\/span><\/p>\n

1. Gross Profit Margin<\/b><\/h3>\n

Gross Profit Margin is calculated by dividing gross profit by total revenue, which will show you how much you can keep per dollar of sale after subtracting product costs.\u00a0<\/span><\/p>\n

Gross Profit Margin (%) = [(Revenue – COGS) \/ Revenue] * 100%<\/strong><\/span><\/p><\/blockquote>\n

Gross profit is your revenue subtracted from Cost of Goods Sold (labor + material costs). So, a low gross profit margin indicates that you may want to look for another supplier or invest more in infrastructure to cut down on labor costs.<\/span><\/p>\n

However, just because you have a healthy gross profit margin doesn\u2019t inherently mean that your Net Profit Margin is healthy too.<\/span><\/p>\n

2. Net Profit Margin<\/b><\/h3>\n

Net Profit Margin is calculated by dividing net profit by total revenue, which will show you how much you can keep per dollar of sale after subtracting all the costs. By \u201call the costs\u201d, we mean your COGS, operating expenses, sales & marketing costs, etc.<\/span><\/p>\n

Net Profit Margin (%) = [(Revenue – COGS – Operating & Other Expenses – Interest – Taxes) \/ Revenue] * 100%<\/strong><\/span><\/p><\/blockquote>\n

The higher your net profit margin is, the more money you have to reinvest to keep scaling your business. If your Gross Profit Margin is healthy but your Net Profit Margin is poor, then you have to manage your operating expenses, and marketing & sales expenditures more wisely.<\/span><\/p>\n

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