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Product margin is the amount of profit a business earns from selling a product after subtracting the cost to make or buy it. It’s the difference between the selling price and the product’s cost, before other expenses like marketing or operations are factored in.
This metric helps businesses understand how profitable each product is and plays a key role in setting prices, managing inventory, and improving overall margins, especially in retail and ecommerce.
To calculate product margin (also known as profit margin), use this formula:
Profit Margin (%) = ((Selling Price – Cost) / Selling Price) × 100
For example, if a product sells for $100 and costs $60 to produce, the profit margin is 40%.
A healthy margin ensures long-term sustainability, especially in businesses with inventory, manufacturing, or variable supply costs.
An ecommerce store sells a pair of wireless earbuds for $100. The total cost to source, package, and ship the product is $60.
Profit per unit = $100 − $60 = $40
Profit Margin = ($40 ÷ $100) × 100 = 40%
This means the store earns a 40% profit margin on each sale.
Regularly review your margins for each product. Even small increases can compound significantly across large sales volumes. Look for ways to reduce costs or increase perceived value to raise margins without sacrificing customer satisfaction.
