The three profit lines
Gross profit = revenue − COGS. Operating profit = gross − operating expenses (rent, salaries, marketing). Net profit = operating − tax and interest. Each line answers a different question: product economics, operational efficiency, and what the owner actually keeps.
Why net margin is the number to track
Revenue growth hides everything. A store doubling revenue while net margin falls from 12% to 4% is working twice as hard for less money. Track net margin monthly against the same month last year, not against last week.
Common traps
- Omitting owner's salary — it is a real cost, not profit
- Treating inventory purchases as COGS in the month you bought them (accrual vs cash)
- Forgetting payment fees, which sit between revenue and COGS
- Ignoring returns and chargebacks until they appear as a nasty surprise
Benchmarks
Ecommerce net margins commonly land between 5% and 15%; below 5% leaves no buffer for a bad quarter, and above 20% usually means either a strong brand or underinvestment in growth.
Frequently Asked Questions
Does net profit include owner's pay?
Only if you enter it as an operating expense. Otherwise it is part of what the owner takes home.
What is a good net margin?
10%+ is healthy for ecommerce; 5% is thin; negative means the model needs work.
Gross vs net — which do investors ask for?
Both. Gross shows product strength, net shows whether the business works.
Assumptions & disclaimer
Results are estimates for planning. Fee schedules, tax brackets and deduction limits change; confirm current figures with the marketplace, the IRS or a qualified accountant before making decisions. Nothing here is financial, tax or legal advice.
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