Profit margin by product
Profit margin by product measures the percentage of revenue retained as profit after deducting cost of goods sold for each product. It reveals which products generate healthy margins and which are margin-dilutive, guiding pricing, promotion, and catalogue decisions.
7 min read
What is profit margin by product?
Profit margin by product calculates the gross margin percentage for each individual product or SKU in your catalogue. If a product generates GBP 50,000 in revenue with GBP 20,000 in cost of goods sold, its profit margin is 60%.
This metric is essential because revenue alone does not indicate profitability. A high-revenue product with a 10% margin contributes less profit than a modest seller with a 65% margin. Many e-commerce businesses discover that their best-selling products are not their most profitable, and that a disproportionate share of profit comes from a small subset of the catalogue.
Product-level margin visibility transforms merchandising decisions. It guides which products to feature in marketing campaigns, which to discount (and by how much), which to bundle, and which to phase out. It also informs pricing strategy by revealing which products have headroom for increases and which are already price-sensitive.
Include all direct costs in COGS, not just the purchase price. Packaging, labelling, inbound freight, and any per-unit fulfilment costs should be captured. Understating COGS inflates margin figures and leads to poor promotion decisions.
Product margin benchmarks
| Segment | Typical product margin | Healthy range |
|---|---|---|
| Fashion and apparel | 55% to 65% | 60% to 75% |
| Beauty and personal care | 60% to 75% | 65% to 80% |
| Electronics and technology | 15% to 30% | 25% to 40% |
| Home and kitchen | 40% to 55% | 50% to 65% |
| Grocery and food | 25% to 35% | 30% to 45% |
How to improve product margins
- 1
Negotiate supplier costs on high-volume products
Products with strong sales volume give you leverage to negotiate better procurement prices. Even a small percentage reduction in COGS on a top-seller creates meaningful margin improvement at scale.
- 2
Test price increases on high-demand products
Products with strong conversion rates and low price sensitivity may support modest price increases. Run controlled tests to identify the price point that maximises total profit contribution rather than volume alone.
- 3
Bundle low-margin products with high-margin items
Create product bundles that combine popular low-margin items with complementary high-margin accessories. This lifts the blended margin of the transaction while increasing perceived value for the customer.
- 4
Reduce per-unit fulfilment costs
Review packaging dimensions, materials, and shipping methods for your highest-volume products. Right-sizing packaging and optimising carrier selection can reduce per-unit costs significantly.
- 5
Phase out or reprice margin-negative products
Products consistently operating below your minimum margin threshold either need a price increase, a COGS reduction, or removal from the catalogue. Carrying margin-negative products drags down overall profitability.
Related metrics
Gross Profit Margin
Revenue efficiency after direct costs
Financial Metrics
Metric Definition
Gross Profit Margin = ((Revenue - COGS) / Revenue) x 100
Gross profit margin measures the percentage of revenue that remains after deducting the direct costs of producing or delivering goods and services. It is the first and most important profitability layer in the income statement, revealing whether a business has sufficient pricing power and cost efficiency to fund operations, growth, and profit.
Product Performance Analysis
Catalogue optimisation
Ecommerce & Marketplace Metrics
Metric Definition
Product performance analysis evaluates each product across revenue, units sold, margin, return rate, and conversion rate. It identifies which products drive value and which underperform, enabling data-driven merchandising, pricing, and inventory decisions.
Average Order Value
Revenue per transaction
Operations MetricsMetric Definition
AOV = Total Revenue / Number of Orders
Average order value measures the mean amount spent each time a customer places an order. It is a core e-commerce and retail metric that directly influences revenue, profitability, and customer acquisition efficiency.
Discount Usage Analysis
Promotional penetration
Ecommerce & Marketplace MetricsMetric Definition
Discount Usage Rate = (Orders with a Discount Code / Total Orders) x 100
Discount usage analysis measures the percentage of orders that include a discount code or promotional offer. It reveals how dependent your revenue is on price reductions and whether your promotional strategy is driving incremental sales or simply subsidising purchases that would have happened at full price.
Know the true profitability of every product
Build a metric tree that maps profit margin by product alongside revenue, COGS, and return rate so your merchandising and finance teams can optimise the catalogue for profitability.
