How the maths works
There are two margins worth knowing, and most stores only track the first one.
Gross margin is what’s left after the product itself: (revenue − COGS) ÷ revenue. It’s the number that makes a product look good in a spreadsheet.
Net margin is what’s left after everything: (revenue − all costs) ÷ revenue. It’s the number that decides whether your bank balance grows.
The gap between them is where most stores quietly lose money. A product with a 60% gross margin can land at 3% net once the courier, the payment processor and Meta have taken their cut.
Three things this calculator does that most don’t
1. It takes GST out of your selling price. If you sell at $100 including 15% GST, your revenue is not $100 — it’s $86.96. The other $13.04 was never yours; it belongs to Inland Revenue. Calculators that skip this overstate every margin by several points. Set the GST field to 0 if your price already excludes tax.
2. It charges payment fees as a percentage. Shopify Payments, Stripe, PayPal and Afterpay all take a cut of the total charged — including the GST portion — plus a fixed amount per transaction. Entering that as a flat dollar figure breaks the moment you change your price.
3. It tells you your break-even ROAS. That’s how much revenue every advertising dollar has to bring back before you start losing money: price ÷ (what’s left after all non-ad costs). It uses the price your customer pays, because that’s the figure your ad platform reports revenue on.
A worked example
Take a $100 product in New Zealand, sold at 15% GST, costing $40 to buy, $8 to ship, $15 in ads and $5 in other costs, on Shopify Payments at 2.9% + $0.30:
- Revenue after GST: $86.96
- Payment fee: 2.9% of $100 + $0.30 = $3.20
- Total costs: $40 + $8 + $3.20 + $15 + $5 = $71.20
- Net profit: $86.96 − $71.20 = $15.76 — a 18.1% net margin
The same product looks like a 60% margin if you only subtract COGS from the sticker price. That is a 42-point difference, and it’s the difference between a business and a hobby.
What counts as a good margin?
It varies by category, but as rough guidance for a product-based store:
- Under 5% — fragile. One courier price rise or a bad ad week puts you under.
- 5–10% — workable at volume, but every cost line needs watching.
- 10–20% — healthy. Most stable stores sit here.
- Over 20% — strong. You have room to spend more on acquisition and still grow.
If you want to raise it, the order that usually pays best is: negotiate your unit cost, lift average order value with bundles or a free-shipping threshold, fix your shipping rates, then cut the campaigns running below your break-even ROAS.
Want these numbers for every product without typing them in? That’s what Rev Room does — or read more in our guide to calculating profit margin and why your ad platforms all claim the same sale.