Profit & margins
What is a good profit margin for an online store?
A good profit margin for an online store depends on what you sell and how you sell it, so no single number fits every store. As a reference point, US public companies in retail and consumer products report gross margins of roughly 23% to 57% and net margins of roughly 3% to 13%, varying by industry.
What is a good profit margin? Gross vs net targets
Two margins matter, and they answer different questions:
- Gross margin (revenue minus product costs, as a % of revenue) shows how much room each sale gives you to pay for ads, shipping and overheads.
- Net margin (what's left after every cost, including interest and taxes) shows what the business actually keeps.
The guide to gross profit margin explains the formula and what belongs in COGS.
Margin benchmarks by industry
The most transparent public benchmark is NYU Stern professor Aswath Damodaran's margins by sector dataset. It's updated every January from US public company filings.
| Industry (US public companies) | Gross margin | Net margin |
|---|---|---|
| Apparel (brands and manufacturers) | 56.9% | 3.9% |
| Beverage (soft drinks) | 54.7% | 13.4% |
| Household products | 51.0% | 11.7% |
| Shoe | 43.9% | 6.3% |
| Retail (special lines) | 35.3% | 5.2% |
| Retail (general) | 33.2% | 5.6% |
| Food processing | 23.2% | 2.8% |
| All US public companies | 37.8% | 9.7% |
Source: Aswath Damodaran, Margins by Sector (US), NYU Stern School of Business, January 2026.
How to read these numbers:
- They're public companies. Large businesses buy at scale and spread overheads over huge revenue. Smaller stores usually face higher product and shipping costs per unit.
- There's no online-only category. Use the row closest to what you sell. A direct-to-consumer brand that makes its own products often looks more like the brand rows (apparel, household products) than the retailer rows.
- Net margin includes everything. It counts interest, taxes and one-off items. Compare it with your true net profit, not profit before tax.
Why margins differ by category
- Brand vs reseller. Selling your own brand usually earns a higher gross margin than reselling other brands, because there's no wholesale markup in between.
- Product cost and size. Bulky or heavy products cost more to ship and store, which squeezes margin after fulfillment.
- Competition and price transparency. Products that are easy to compare across stores tend to settle at lower margins.
- Returns. Categories with high return rates, such as apparel and footwear, lose margin to return shipping, restocking and unsellable items.
- Customer acquisition. Categories where customers buy once need more ad spend per order than categories with frequent repeat purchases.
Levers that raise your margin
| Lever | What to do | Helps |
|---|---|---|
| Pricing | Raise prices where you're underpriced; price from a target margin, not a markup | Gross and net |
| COGS | Negotiate supplier prices, consolidate freight, review landed cost | Gross and net |
| Shipping | Set a free shipping threshold above your AOV, negotiate carrier rates | Net |
| Ads | Cut spend that doesn't clear break-even ROAS | Net |
| Returns | Better size guides and product photos, stricter return windows | Gross and net |
| Discounts | Target codes instead of running sitewide sales | Gross and net |
Some calculators that help with each lever:
- Contribution margin calculator: find your weakest products.
- Free shipping threshold calculator: check whether a threshold pays.
- Ad Profit Leak Score: see whether your ad spend is profitable after margin.
Worked example: from target profit to required gross margin
The most useful margin target is the one your own costs require. Work backward from the profit you want, with every cost as a percentage of revenue:
Worked example: what gross margin do I need?Example numbers
| Cost or target | % of revenue |
|---|---|
| Target profit before tax | 10% |
| Fixed costs: apps, software, staff ($6,000 on $40,000 monthly revenue) | 15% |
| Ad spend | 18% |
| Shipping and payment fees | 12% |
| Gross margin needed | 55% |
10% + 15% + 18% + 12% = 55%. If your products' gross margin is below 55%, something has to give: prices, product costs, ad spend or fixed costs.
This also shows why the same gross margin can be great for one store and not enough for another. A store that spends little on ads can hit its profit target with a much lower gross margin.
How to set your own margin target
- Start from your costs. Add up your monthly fixed costs: apps, software, staff and rent.
- Work out the gross margin you need. Your gross profit must cover ad spend, shipping, fees and those fixed costs, and still leave the net profit you want.
- Check it product by product. The products that drag the average down are usually a small group. Fix or drop them first.
- Track it monthly. The trend matters more than any one month.
For the formula and what belongs in COGS, see the guide to gross profit margin. For which categories tend to earn high margins, see high-margin ecommerce niches.
FAQ
What is a good net profit margin for a small business?
It depends heavily on the industry. In the US public-company data below, net margins range from under 3% for food processing to over 13% for soft drinks. A useful test for your own store is whether net profit is growing and covers the return you want on the time and cash you've put in.
What is the average ecommerce profit margin?
There's no reliable public average for online stores as a group. Most published figures come from surveys of an app's own users or from public companies. Benchmarks for the product category you sell are more useful than an ecommerce-wide average.
Should I aim for a high gross margin or a high net margin?
Both matter, but net margin is what you keep. A high gross margin gives you room to spend on ads, shipping and overheads; net margin shows whether that spending leaves a profit.
Can a store be profitable with a low margin?
Yes, if it sells in high volume with low costs per order. Low-margin stores have less room for error, though: a rise in ad costs or shipping can wipe out profit quickly.