Product margin
Built for ecommerce profit margin optimization, the model sets selling price against cost of goods sold, freight, marketplace fees, payment costs, refunds, advertising and the other costs required to make the sale. Each SKU is judged on what it actually contributes, not on turnover alone.
Why the number matters
Revenue can look healthy while profit margin quietly slips. Supplier prices rise, freight gets more expensive, ad spend increases or refunds edge up, yet the selling price may stay unchanged. The SKU keeps moving, so weaker unit economics can be easy to miss.
What healthy margin control looks like
Good margin management is not about chasing the highest possible percentage on every SKU. It is about knowing what each product needs to contribute, why the current price makes sense, and how much room you have before a discount, fee increase or acquisition cost pushes the SKU toward its break-even point.
Before the model is built
Unit economics change by channel. The same product can produce a different profit margin on a marketplace, an independent store or a paid acquisition campaign because commissions, fulfilment fees, payment costs, advertising, refunds and shipping are different. Before the model is built, we decide which costs belong to each SKU, how variable costs will be treated and what level of contribution matters for each product role.
Work it out
Put one product through the arithmetic. Selling price in, every cost that comes out of that sale, and what is actually left — the same calculation we run at SKU level across a catalogue.
What the customer pays.
Supplier price, materials and the shipping in to you.
What delivery costs you, where you cover it.
Card and payment provider fees on the order.
Commission the channel takes. Zero on your own storefront.
Only the monthly and annual figures use this.
Formula
Profit margin = ((Revenue − Total costs) ÷ Revenue) × 100
Margin is the share of the selling price left after everything that sale costs you. It is only accurate once every variable cost is in — the ones left out are why a margin can look healthy and still not be.
Profit margin
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Profit per unit
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Total cost per unit
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Markup
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Monthly revenue
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Monthly profit
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Annual profit
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Where that margin sits
General ranges rather than a target. Where a product should sit depends on its category, channel and the volume behind it.
Five phases turn raw cost data into a working baseline before live monitoring begins. Every important assumption stays visible so it can be questioned, updated and acted on. We run one continuous process.
01 / 05
We agree the cost lines first: cost of goods sold, freight, packaging, marketplace charges, payment fees, advertising, refunds and any other material selling costs. Using one definition across the range stops two similar products from being measured by different rules.
Those inputs are gathered by SKU and by relevant channel. Missing figures are flagged, estimates are labelled and averages are used only where product-level data cannot yet be separated.
Selling price is set against the agreed cost structure so each SKU shows what remains after the selling costs. Where profit margin or markup is used in a decision, the definition stays clear and consistent. The arithmetic remains readable instead of disappearing behind one final percentage.
Products are grouped by role and assessed against the contribution expected from them. The first range view shows which SKUs are comfortably inside the target, which need attention and which need a commercial decision.
Repricing, supplier conversations, promotion limits and products needing closer review come out of the baseline. You approve the commercial decisions. The model then becomes the reference point for an ecommerce product pricing strategy that is based on current costs rather than guesswork.
Who we build for
The service is the same. What it is pointed at is not — the category, the products and the priorities are decided around the person the store belongs to.
After the call
The consultation establishes what needs to be measured and which decisions matter. The model gets more useful as estimates give way to trading history and recurring cost movements become easier to spot.
Month 01
Products, channels, cost sources and available trading data are reviewed. We agree the cost definitions and contribution expectations before treating the first range assessment as reliable.
Month 02
The per-SKU contribution model goes live and the first range baseline is produced. Products needing repricing, better cost data, a supplier discussion or closer monitoring become visible.
Month 03
Fresh supplier invoices, advertising data, refund behaviour and current fee information start replacing older assumptions. The difference between planned unit economics and actual trading economics becomes much easier to see.
Month 06
Several months of cost and sales history make recurring patterns clearer. Products that hold their contribution consistently separate themselves from SKUs that only work under favourable conditions or temporary pricing.
Month 09
Promotions, seasonal demand, new products and changes in sales mix show how the range behaves under different conditions. Thresholds and pricing decisions can now be reviewed with more context than they had at launch.
Month 12
A full year of contribution, cost movement, offers and product mix is reviewed. Assumptions that still hold are kept, weak ones are replaced, and the next year starts with a clearer view of where the store actually earns its margin.
What stays under control
Once the baseline exists, another report is not the point. The work is keeping moving costs and assumptions current enough that an old model does not become a misleading one.
Supplier price alone is not the full product cost. Cost of goods sold, freight, packaging, marketplace charges, payment fees, acquisition cost and post-sale behaviour need to stay attached to the SKUs that create them.
Kept currentUnit pricing, freight and packaging can shift without any visible change to the storefront. Those inputs need updating because small movements at unit level compound quickly across volume.
Kept currentDifferent channels take different amounts from a sale, and fee structures can change. The model is updated for the current selling environment instead of relying on the fee schedule that existed when the product launched.
Kept currentA product pricing strategy for ecommerce should respond to what a SKU currently costs to sell. Proposed price changes are tested against contribution, profit margin and the break-even point rather than copied from competitor movement alone.
Kept currentDiscounts, advertising, refunds and replacements remove margin at different points in the transaction. Keeping them visible stops a product from being judged only by the cleanest version of the sale.
Kept currentThe products carrying the store can change as volumes shift. We keep reading the range by contribution so weak lines are not protected by overall revenue or by stronger products elsewhere in the catalogue.
Kept currentQuestions
Short answers to the questions owners usually want settled before the margin model and monitoring begin.
If you are looking for how to calculate product margin, start with the selling price and subtract the agreed costs for that SKU. Those costs can include cost of goods sold, shipping, packaging, marketplace fees, payment charges, advertising and expected refund-related cost. If you want a percentage, divide what remains by the selling price and multiply by 100. Any missing cost is labelled as an estimate so the number does not pretend to be more certain than the data behind it.
There is no single percentage that is right for every store. A useful target depends on cost of goods sold, channel fees, fulfilment, acquisition cost, refund behaviour and the role the SKU plays in the range. We set thresholds around your unit economics rather than borrowing a generic benchmark that may not fit the business.
No. Pricing changes remain commercial decisions for you to approve. We keep the cost picture current, show what the existing price produces and explain the reasoning behind any proposed change. That gives your ecommerce pricing strategy a current set of numbers to work from.
Where the numbers justify that conversation, yes. Repricing, supplier negotiation, fulfilment changes or a different role in the range may solve the problem first. But a SKU that consistently misses the contribution expected from it should not be protected simply because it produces revenue.
No. This is operational product-margin analysis designed to support pricing strategy, promotion, sourcing and range decisions inside the store. It does not replace accounting, tax, investment or other regulated financial advice.
No. Better visibility can support better decisions, but supplier pricing, platform fees, demand, competition and other commercial variables remain outside our control. Ecommerce profit margin optimization keeps the unit economics visible and current; it cannot promise a specific result.
The next step
We use the call to understand the products, channels, available cost data and contribution expectations behind the range. From there, we can build the model, identify where the unit economics deserve attention and keep the inputs current while the commercial decisions remain with you.
No pressure. We will explain what goes into the model, which information we need, which pricing and range decisions remain yours and whether the service fits the way your store operates.