Gross Margin as a success factor
Gross Margin is the first measure of your pricing power and purchasing efficiency.
Gross Margin is one of the most fundamental metrics in e-commerce. It shows what percentage of revenue remains after deducting the pure cost of goods - before other operating costs are considered.
What exactly is Cost of Goods Sold?
Cost of Goods Sold (COGS) includes all direct costs associated with the product itself:
- 1 Purchase price: The price you pay to your supplier.
- 2 Import costs: Duties, freight and insurance for imports.
- 3 Storage costs: Direct costs for storage and handling (optional).
Gross Margin vs. Contribution Margin
While Gross Margin only considers pure product costs, Contribution Margin includes all variable costs - including shipping, packaging and payment fees. Gross Margin is therefore always higher than Contribution Margin.
A product with 60% Gross Margin may only have a 50% Contribution Margin after deducting shipping (5%), payment (3%) and packaging (2%).
Strategies for margin optimization
There are two fundamental ways to improve Gross Margin:
- 1 Purchasing side: Negotiate better conditions, switch suppliers, develop private labels, leverage bulk purchasing.
- 2 Sales side: Increase prices, reduce discounts, develop premium products, create higher-margin bundles.
Regularly analyze your Gross Margin by product categories. Often, extreme differences hide behind an average overall value - from highly profitable niche products to low-margin traffic drivers.
Combine Gross Margin with Net Margin to get a complete picture of your profitability.