What is gross margin?
Gross margin is the difference between what you charge for a product and what it cost you. In Ecommy's Commerce Intelligence Model this is called profit after cost of goods: the innermost of three layers of profit.
How do you calculate it?
Subtract the cost price from the selling price excluding VAT.
Example: you sell a product for €100 excluding VAT and bought it for €40. The gross margin is €60, or 60%.
Why gross margin is not enough
Many online stores steer on gross margin, but it leaves out the costs that differ most per order: shipping, payment fees, commission and returns. For the product above, another €20 comes off, leaving €40 instead of €60.
Two products with the same gross margin can therefore turn out very differently. For advertising decisions you need profit after order costs.
In Ecommy
Ecommy shows profit after cost of goods, after order costs and after marketing side by side, so you see where your profit disappears along the way.