Profit margin is the most fundamental financial indicator for any entrepreneur, retailer or e-commerce seller. Knowing your margin on each product allows you to set prices correctly, identify profitable products and avoid unknowingly selling at a loss.
Gross margin is the difference between selling price and cost of goods sold. The margin rate expresses this margin as a percentage of the selling price. The markup rate, often confused with margin, expresses the margin as a percentage of the purchase price. These two rates are very different: a 50% margin on selling price equals a 100% markup on purchase price.
📐 Formula
Margin = Selling Price - Cost | Margin rate = (Margin / Selling Price) × 100 | Markup rate = (Margin / Cost) × 100
📊 Reference table
| Sector | Average margin rate | Example cost → price |
|---|---|---|
| Grocery retail | 20–30 % | $1.00 → $1.30 |
| General e-commerce | 30–50 % | $20 → $33 |
| Restaurant | 65–75 % | $3 → $10 |
| Fashion / apparel | 50–70 % | $15 → $40 |
| Software / SaaS | 70–90 % | near-zero marginal cost |
| Jewelry / luxury | 50–65 % | $200 → $500 |
💡 Practical examples
Example 1: product bought for $20 sold at $45
Margin = 45 - 20 = $25. Margin rate = (25/45) × 100 = 55.6%. Markup rate = (25/20) × 100 = 125%.
Example 2: find selling price for 60% margin
If Cost = $12 and target = 60% margin rate: Price = Cost / (1 - 0.60) = 12 / 0.40 = $30.
Example 3: margin after shipping costs
Cost = $25, shipping = $5, Price = $55. Total cost = $30. Net margin = $25. Real margin rate = 45.5%.