Understanding the Average Profit Margin for Ecommerce: What You Need to Know

Why margins matter (and why “average” is tricky)

Profit margin tells you how much of every sales dollar your business keeps after covering costs. In ecommerce, operators often mix up gross margin and net margin when they ask, “What’s a good average?” The answer changes dramatically depending on whether you include only product costs (gross) or every expense (net). This guide clarifies each margin layer, shows you how to calculate them, and offers realistic ranges with caveats so you can benchmark responsibly.

The core margin definitions, with simple formulas

• Gross profit margin: The share of revenue left after direct product costs (COGS). Formula: (Revenue − COGS) ÷ Revenue × 100. As explained by Stripe’s gross vs. net profit guide (2024), gross profit focuses only on direct costs.
• Operating margin (EBIT margin): The share of revenue left after COGS and operating expenses (shipping/fulfillment, payment processing fees, marketing, salaries, rent). Formula: Operating income ÷ Revenue × 100, where operating income = Revenue − COGS − Operating expenses.
• Net profit margin: The share of revenue left after all costs, including interest and taxes. Formula: Net profit ÷ Revenue × 100. Stripe’s materials consistently define net margin as all-in profit after expenses.

Mini examples with round numbers

Imagine one month of sales:

• Revenue = $100
• COGS = $55
• Operating expenses (shipping, fees, ads, salaries, etc.) = $35
• Interest + taxes = $3

Now compute:

• Gross margin = (100 − 55) ÷ 100 = 45%
• Operating margin = (100 − 55 − 35) ÷ 100 = 10%
• Net margin = (100 − 55 − 35 − 3) ÷ 100 = 7%

Contribution margin for unit economics

For channel and cohort analysis, contribution margin helps you compare order-level economics to acquisition costs:

• Contribution margin per order = Selling price − variable costs (COGS, payment fees, outbound shipping). Stripe’s break-even guidance (2025) discusses this method in detail; see Stripe’s break‑even point explainer (2025).

What’s a “typical” ecommerce margin?

There isn’t a single universal average, but you can use context ranges:

• Public-company retail context: Sector datasets compiled by finance professor Aswath Damodaran show Retail (General) operating margins around 4–5% and net margins around 1–2% in 2025. These are broad, blended averages of larger firms with different scale and cost structures. See Damodaran’s operating and net margins by sector (2025) for the latest tables.
• SMB/DTC operator context: Many small and mid-sized ecommerce brands target sustainable net margins around 5–10%, with 10–15% considered strong and ~20% excellent in certain models (low returns, efficient fulfillment, strong retention). A practical summary appears in SellersFi’s “good margin” overview (2023).
• Gross margins by category and model: Operator accounting guides often cite broad ranges such as 40–60% for many physical-goods DTC brands, lower ranges for electronics (often 10–30%), and much higher for digital goods (70%+). For planning room to cover operating costs, LedgerGurus’ gross margin guidance (2025) emphasizes aiming high enough at gross to fund OPEX.

Important caveat: ranges vary with product category, business model (DTC vs. marketplace vs. dropship vs. subscription), pricing power, return rates, shipping/3PL arrangements, and scale. Use them as directional context, then refine with your own data.

Why sources disagree on “average margins”

• Accounting classification differences: Whether you include outbound shipping and payment processing in COGS or treat them as operating expenses will change how “gross” vs. “net” appears. Shopify’s finance guides distinguish COGS from fulfillment and payment fees; see Shopify’s COGS definition (2025) for authoritative framing.
• Business models and scale: Marketplace sellers pay platform fees and may face price compression; subscription models can enjoy better retention and contribution per order; electronics often have thinner gross margins than apparel.
• Returns and discounts: High return rates and aggressive discounting compress both gross and net margins.
• Channel mix and CAC: Paid acquisition can be profitable or not depending on AOV, repeat rate, and LTV; channels with higher CAC may require better contribution margins or stronger retention.

Quick self-assessment: compute and benchmark your margins

1. Pull data for a recent month or quarter (Shopify or your ecommerce platform + accounting software).
2. Confirm cost classifications: COGS should include product costs and inbound freight; treat outbound shipping, payment processing, and fulfillment as operating expenses if you follow this convention.
3. Calculate:
   • Gross margin = (Revenue − COGS) ÷ Revenue × 100
   • Operating margin = (Revenue − COGS − Operating expenses) ÷ Revenue × 100
   • Net margin = (Revenue − all expenses) ÷ Revenue × 100
4. Adjust for returns: Use net revenue after refunds to avoid overstating margins.
5. Benchmark cautiously: Compare your gross to category peers and your net to SMB ranges, remembering public-company benchmarks tend to be lower at net.
6. Identify top two margin levers to test next quarter (pricing, product mix, fulfillment terms, returns policy, acquisition efficiency).

Measurement prerequisites: CAC, AOV, LTV, and event tracking

To understand whether acquisition costs are eroding your net margin, you need reliable CAC and contribution margin by channel/cohort. That requires consistent UTMs, pixel/event tracking, and clean order attribution. If you’re setting this up, see Getting started with tracking in Attribuly’s Help Center for a practical checklist on events and URL parameters that underpin CAC/ROAS/LTV analysis.

Practical workflow example: connect contribution margin to CAC

Disclosure: Attribuly is our product. If you want to see how acquisition costs affect net margin, you can use an attribution platform like Attribuly to break down orders by channel, attach ad spend, and estimate CAC by cohort. Then, compare contribution margin (price − COGS − variable fees − outbound shipping) against CAC to see which channels are truly profitable and which may need pricing, discount, or targeting adjustments. This doesn’t improve margins by itself—but it provides the clarity to act.

Common margin levers for ecommerce operators

• Pricing and discount discipline: Small price changes or fewer sitewide discounts can move gross margin meaningfully.
• Product mix: Favor higher-contribution SKUs; consider bundles that raise AOV and spread fixed costs.
• Shipping and 3PL terms: Negotiate rates; evaluate packaging to reduce dimensional weight; offer slower, cheaper options when appropriate.
• Returns management: Improve product pages and sizing guides; consider exchanges; monitor return reasons.
• Payment processing fees: Encourage lower-fee methods where feasible; watch for cross-border surcharges.
• CAC/AOV/LTV dynamics: Improve targeting and retention; push post-purchase flows and loyalty to raise repeat rates; use contribution margin as the yardstick for channel profitability.

Final thoughts

Margins are not one number—they’re a layered view of your business. Compute gross, operating, and net consistently, benchmark with context, and focus on the two or three levers that move your economics most. As of September 2025, public retail datasets suggest low single-digit net margins for larger firms, while SMB ecommerce operators commonly aim for mid-single to low-double digits net. The right target for you depends on your category, model, and the operational choices you make.