Profit margin calculator
Gross margin is the share of each sale you keep after the cost of goods: (revenue minus cost) divided by revenue. It is the single most important number in paid media, because it sets the break-even ROAS every campaign has to clear. Solve it any way and see where you stand.
Using typical funnel assumptions, to show that the metric above can’t tell you if you’re winning. Your real numbers live in the full calculator.
Your 45% is below the apparel / fashion median of 55%. These vary widely by brand and stage; treat it as directional.
Drop in one product and the Target ROAS calculator works your whole P&L backwards to the number that actually decides it, free, no signup.
What is gross profit margin?
Gross margin is the share of each sale you keep after the cost of the goods sold. It is the most important number in your business, because it sets how much every order can contribute to ads, overhead and profit. A 60% margin keeps $60 of every $100 sale before any other cost.
The catch: most brands quote the margin off the product cost alone and ignore the rest of the cost stack. The number that runs your P&L is the real margin, after shipping, payment fees, returns and any per-order costs.
How to calculate profit margin
Take a $100 shirt at a 70% product margin. Add $8 to ship, payment and transaction fees of about $3.50, a returns allowance and inbound freight, and the real gross margin can land near 24%, not 70%. That 46-point gap is the difference between a healthy account and a quiet loss. Run your full stack in the unit economics calculator.
What is a good profit margin?
It is contextual, not a single number. Apparel and beauty brands often run 60% to 75% gross margins; electronics and commodity goods can sit at 20% to 35%. What matters is whether the margin is wide enough to fund acquisition and still leave profit. A 25% margin with a $200 order can outperform a 70% margin on a $20 order.
Break-even ROAS is simply 1 / margin. A 60% margin breaks even at about 1.7x; a 25% margin needs 4x just to cover the ad spend. Your target ROAS sits above that floor. Work it out in the Target ROAS calculator.
How to improve gross margin
- Raise price or move the mix to higher-margin SKUs before touching cost. A small price rise drops almost straight to margin.
- Cut landed cost: renegotiate supplier terms, raise order quantities, consolidate freight, review duties.
- Attack returns. Returns are a direct margin leak; better sizing guides, photography and descriptions reduce them.
- Lift AOV with bundles and thresholds so fixed per-order costs (shipping, payment fees) spread over more revenue.
The operator’s playbook
How a paid-media operator reads this number, not a glossary definition.
Margin sets your break-even ROAS+
Break-even ROAS is 1 / gross margin. A 50% margin breaks even at 2x; a 25% margin needs 4x just to stop losing money. Every paid-media target you set is built on this number, which is why getting the real margin right matters more than any bid setting.
Use real margin, not sticker margin+
Subtract product cost, shipping and fulfilment, payment fees, and the drag from returns and discounts. The gap between sticker margin and real margin is where ad budgets quietly go underwater.
Gross vs net vs contribution+
Gross margin is after COGS. Contribution margin also strips variable selling costs. Net margin is after everything including overhead. For setting ad targets, work from gross or contribution; net is the scoreboard, not the dial.
Frequently asked questions
How do you calculate gross margin?
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(Revenue - cost of goods) / revenue x 100. A product that sells for $100 and costs $55 has a 45% gross margin. This tool also solves for the revenue or cost that hits a target margin.
What is a good profit margin?
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It varies by category: apparel and electronics run leaner, beauty and supplements run higher. The table above shows cited medians by industry. What matters for ads is that the margin leaves room above your break-even ROAS.
Is margin the same as markup?
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No. Margin is profit over price; markup is profit over cost. A 45% margin is an 82% markup. Use margin for ad targets.
What is the difference between gross and net margin?
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Gross margin is after the cost of goods only. Net margin is after everything, including overhead, ads and tax. Gross margin sets your break-even ROAS; net margin is what reaches the bank.
Why is my real margin lower than my product margin?
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Because product margin ignores shipping, payment and transaction fees, returns and inbound freight. Add those and a 70% product margin can fall to the mid-20s. That real margin is what runs your P&L.
How do I convert margin to markup?
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Markup = margin / (1 - margin). A 40% margin is a 67% markup. Pricing to a margin target without converting underprices the product.
Built by Yehonatan Tav, paid media for ecommerce brands spending $50k to $500k a month. Figures are illustrative; run the logic on your own numbers.