Gross margin calculator

How it is worked out

• Gross profit = revenue minus product cost, shipping and card fees.
• Gross margin = gross profit divided by revenue.
• Break-even ROAS = 1 divided by gross margin: the ROAS your ads need before they make money.

Example: a $40 desk organizer store

• $60,000 in sales, $24,000 in product cost: a 60% margin on products alone.
• Shipping takes $4,000 and card fees $1,800.
• The real gross margin is 50.3%: $30,200 to pay for ads, staff and everything else.
• At that margin, ads need a ROAS of 1.99 just to break even.

Questions

What is a good gross margin for an online store?

• One that leaves room for ads.
• Gross margin sets the ROAS your ads need to break even: at 50% it is 2.00, at 30% it is 3.33.

What is gross margin?

• Gross profit as a share of revenue.
• For an online store: revenue minus product cost, shipping and payment fees.

What is the gross margin formula?

• Gross margin % = (revenue minus cost of goods sold) divided by revenue, times 100.
• Include shipping and fees if you pay them on every order.

Should shipping be in cost of goods sold?

• If you pay it on every order, count it here.
• Leaving it out makes your margin look higher and your break-even ROAS lower than they are.