When you start selling online, one of the first questions that comes up is: What profit margin should I apply to my products? There is no single correct answer, but there are clear criteria that will help you calculate a sustainable, competitive, and profitable margin.
In this article, we’ll give you specific tips for setting your margin, avoiding common mistakes, and growing your online store.
What is profit margin?
The profit margin is the difference between the selling price and the total cost of a product. It can be expressed as an absolute value (profit per unit) or as a percentage.
Simple formula:
Margin (%) = [(Selling price – Total cost) / Selling price] x 100
For example, if you buy a backpack for $20 and sell it for $40, the margin is 50%.
What is an ideal profit margin?
It depends on the type of product, your business model, and the costs involved. However, here are some common references:
Product type Suggested average margin:
- Physical products 30% to 60%
- Handmade products 50% to 80%
- Digital products 70% to 90%
- Fashion and accessories 50% to 100%
- Electronics 10% to 30%
Practical tip:
If you sell highly competitive products (such as electronics), it is normal to have low margins but make up for it with volume. On the other hand, in customized niches (such as gifts, art, or clothing with your own designs), you can raise your margin because the perceived value is higher.
What should you include in the total cost?
Many entrepreneurs make the mistake of calculating their margin based only on the purchase price. This leads to selling without knowing that they are losing money. The actual total cost should include:
- Purchase price of the product
- Shipping from supplier or manufacturer
- Packaging
- Payment gateway fees (Mercado Pago, Stripe, etc.)
- Advertising costs (Facebook Ads, Google Ads)
- Production or preparation time (if applicable)
- Divided monthly fixed costs (hosting, tools, apps)
- Taxes (depending on the country)
Practical tip:
Create a spreadsheet where you add up all the associated costs. That way, you’ll know how much it really costs you to sell each unit.
How to set your margin without losing competitiveness?
Setting very low prices may attract customers, but if the margin is too small, your business is not sustainable. On the other hand, if you raise the price too much without justification, you could lose sales.
Specific steps to balance margin and competitive pricing:
- Research your direct competition. How much do they charge for similar products?
- Identify your unique selling point. Do you offer exclusive designs? Faster customer service? Free shipping?
- Segment your products. Use higher margins on hard-to-find products and lower margins on more popular products to attract visitors.
- Do A/B testing. List the same product at different prices and see which one converts better.
- Monitor key metrics. Don’t just look at sales: look at the average ticket, margin by category, and customer acquisition cost (CAC).
Gross margin vs. net margin
- Gross margin: the difference between the selling price and the direct cost of the product.
- Net margin: actual profit after all expenses, including advertising, tools, and services.
Practical tip:
Work with both margins. The gross margin tells you if the product is profitable, the net margin tells you if the business is working.
Should I lower my margins with discounts?
Yes, but with a strategy. Discounts shouldn’t eat up all your profits. Use them to:
- Rotate stagnant stock
- Increase average ticket size with combos
- Attract new customers with your first sale
Always calculate how much margin you have left after the discount. If the net margin is less than 10%, you are most likely selling at a loss.
How can you increase your margin without raising your price?
There are two effective ways:
- Reduce costs. Negotiate with suppliers, optimize your logistics, automate tasks.
- Increase perceived value. Improve your presentation, add useful content to the product, work on your brand. People don’t just buy prices, they buy experiences.
In summary:
- A good margin depends on your industry, your costs, and your unique value.
- Carefully calculate all hidden costs: shipping, commissions, advertising, taxes.
- Don’t blindly copy prices: analyze your competition and test.
- Increase your margin with efficiency and value-added strategies.
- Don’t forget to check your net margins, not just your gross margins.
Do you already have an online store?
If you are just starting out or looking to improve your e-commerce, at Neolo Shop we give you concrete tools to sell better:
- ✅ No sales commissions
- ✅ 30 days free to try out your store
- ✅ Plan with your own domain, ideal for websites and email
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Neolo is a platform created to help you grow with clarity and results. Start today and focus on selling. We’ll take care of the technical side.
Frequently asked questions about profit margins when selling online
What is a healthy profit margin in e-commerce?
It depends on the industry, but between 30% and 60% is usually a healthy range.
How do I calculate the correct profit margin?
Subtract the total cost (including everything) from the sale price and divide by the sale price. Multiply by 100.
What if I have a low margin?
You need to compensate with volume or lower costs. If you can’t do that, the product is probably not viable.
Is it better to have high-margin or low-margin products?
It depends on your strategy. Some products win on volume (low margin), others on exclusivity (high margin).
Should I calculate margins by category?
Yes, it’s key to knowing which categories are sustaining your business and which aren’t.
Is it bad to have products with different margins in an online store?
No, it’s normal. Just make sure the final average is healthy.