Product margin shows how much of a product’s selling price remains after costs. For eCommerce, true product margin should be checked after product cost, fees, shipping, packaging, discounts, ads, and refunds where relevant.
Gross vs contribution margin
Margin type
Includes
Use
Gross margin
Selling price minus product cost
Basic product economics
Contribution margin
Minus variable selling costs too
Ad and scaling decisions
Net margin
Includes overhead allocation
Business profitability
A product can have good gross margin but poor contribution margin if ads, shipping, or returns are high.
Worked example
A product sells for £50 and costs £18 to source. Gross profit is £32 and gross margin is 64%. But after £5 fees, £6 shipping, £2 packaging, £8 ads, and £2 refund allowance, contribution profit is £9 and contribution margin is 18%.
Why product-level margin matters
A store average can hide problems. One product may generate revenue but no profit, while another quietly funds the business. Product-level margin helps decide what to promote, bundle, discontinue, or reprice.
Common mistakes
Using product cost only.
Ignoring discounts.
Averaging all products together.
Not including ad cost by product.
Forgetting returns and replacements.
Not recalculating after supplier price changes.
Assuming best-selling means most profitable.
Practical review
Create a margin sheet for every product. Include normal price, sale price, variable costs, ad cost, refund allowance, and contribution margin. Then rank products by profit, not just sales.
FAQ
What is product margin?
Product margin is the percentage of selling price left after product-related costs.
Should ads be included?
For contribution margin, yes. For gross margin, no. Use the version that matches your decision.
Why calculate margin by product?
Overall store margin can hide weak products that lose money.
Can discounts destroy margin?
Yes. Discounts reduce revenue while many costs stay the same.
What margin is good?
It depends on category, business model, repeat purchase, ad cost, and overhead.
Business note: CalcBeacon eCommerce guides are educational and designed to explain calculations, pricing logic, and profitability checks. They are not tax, legal, accounting, or financial advice. For important business, VAT, tax, or platform compliance decisions, check official guidance or speak with a qualified professional.
