Gross margin flatters
A product bought at £12 and sold at £30 looks like a 60% margin. After payment fees, shipping, packaging, the platform, the apps and a share of returns, the actual contribution is frequently half that.
Stores that do not calculate the real figure end up promoting their least profitable lines, because revenue and profit are not the same shape.
What comes off
- Cost of goods, including inbound shipping and any duty
- Payment processing — typically 1.5–3% plus a fixed fee
- Outbound shipping, including what you subsidise
- Packaging, which is not trivial for anything fragile
- Returns — both shipping legs plus lost resale value
- Platform and apps, allocated per order
The returns line is the one most often left out and the one that most often changes the answer. A 20% return rate can turn a healthy margin into a loss.
Calculate it per product
An average across the catalogue hides the problem. Work it out for your top twenty products individually and the picture usually shifts.
- Which products actually contribute most, not which sell most
- Which are loss-making after returns
- Which subsidise free delivery and which are subsidised by it
- Which justify advertising spend and which cannot
Free delivery has to be priced in
Free delivery above a threshold is a discount, and it comes out of margin. If your average order is £45 and delivery costs you £5, that is over eleven per cent of the order price.
Either price it in, set the threshold where the additional items cover it, or accept that it is a marketing cost and account for it as one.
Then decide what to promote
| Product | Action |
|---|---|
| High contribution, high volume | Promote and protect stock |
| High contribution, low volume | Promote — the easiest gain available |
| Low contribution, high volume | Reprice or reduce cost |
| Loss-making after returns | Fix the return cause or discontinue |