What Is Net Margin?
7 min read · Updated 2026-06
Definition
Net margin is the percentage of revenue you keep after every single cost is paid — product costs, refunds, payment fees, shipping, apps, marketing, and overhead. It is the truest measure of whether your business makes money.
Gross margin tells you if your product is priced right. Net margin tells you if your business is priced right.
Formula
Net Margin = (Net Profit ÷ Revenue) × 100
Net Profit = Revenue − COGS − Refunds − Payment Fees − Shipping − Apps − Marketing − Overhead
Example
A home goods store, $40,000/month revenue:
- Revenue: $40,000
- COGS (40%): −$16,000
- Refunds (6%): −$2,400
- Payment processing (3%): −$1,200
- Shipping: −$3,200
- Shopify + Apps: −$380
- Marketing: −$5,000
- Net Profit: $11,820 → 29.6% net margin undefined
If refunds jump to 10% and marketing rises to $6,000, net margin drops to 22.5%. Same store, $3,780 less profit.
Common Mistakes
- Stopping at gross margin. My gross margin is 60% sounds great, but after all costs you might be at 15%.
- Not tracking payment fee losses on refunds. You refund $100, give back $100, but the $3.20 payment fee is gone. On 500 refunds/month that is $1,600.
- Treating marketing as optional. If you spend on ads, that is a cost. We are profitable before marketing is not actually profitable.
Industry Benchmarks
| Store Type | Gross | Net | Gap |
|---|---|---|---|
| Fashion DTC | 55% | 12% | 43 pts |
| Beauty Subscription | 65% | 18% | 47 pts |
| Electronics | 30% | 5% | 25 pts |
| Supplements | 70% | 25% | 45 pts |
Upload your CSV to see your exact gap →
FAQ
What is a healthy net margin for e-commerce?
10–20% is healthy. Above 20% is excellent. Below 5% is a warning sign. The most profitable e-commerce brands operate at 25–35%.
Why is my net margin so much lower than my gross margin?
Because gross margin only subtracts product cost. Net margin also subtracts payment processing (2.9%+), refunds (5–10%), shipping, marketing, apps, and overhead.
Does net margin include taxes?
Net margin is usually calculated pre-tax. After-tax net margin is sometimes called bottom-line margin.
How do I calculate net margin from my Shopify data?
Export your Shopify Orders CSV, subtract COGS, refunds, payment fees, shipping costs, and monthly app subscriptions from total revenue. Our CSV Profit Checker does this automatically.
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