Gross profit and net profit are not the same number and mixing them up can make a failing product look profitable. This guide explains both clearly, shows you when each matters, and ties directly to our free Profit Calculator which handles the maths for Amazon, eBay, Etsy, Shopify, and 12 other platforms.
What Is Gross Profit?
Gross profit is revenue minus the direct cost of making or acquiring the product you sold:
Gross Profit = Selling Price − Cost of Goods Sold (COGS)COGS for an e-commerce seller typically means: product cost + inbound shipping + packaging. It excludes overheads like advertising, staff, software, or platform fees.
What Is Net Profit?
Net profit is what remains after subtracting all costs COGS plus all operating expenses:
Net Profit = Gross Profit − Operating ExpensesOperating expenses include platform fees (Amazon charges up to 15%), outbound shipping, advertising, returns, software subscriptions, and payment processing fees. Net profit is the number that actually lands in your account. Use our Profit Calculator to see platform fees automatically applied by marketplace.
Gross Margin vs Net Margin
Absolute profit figures are misleading without context. A $10 profit on a $12 product is extraordinary; a $10 profit on a $500 product is a disaster. Margin percentage normalises the comparison:
- Gross Margin = Gross Profit ÷ Selling Price × 100
- Net Margin = Net Profit ÷ Selling Price × 100
For physical products, a net margin of 15–25% is generally considered healthy. Below 10% leaves very little room for price competition or returns. Use our VAT Calculator to ensure tax is correctly excluded from your margin calculations where applicable.
Why Sellers Get This Wrong
The most common mistake: calculating gross profit, seeing a comfortable margin, then forgetting that platform fees, returns, and advertising can consume 20–30% of revenue. A product with a 35% gross margin and $8 per unit advertising spend can have negative net profit.
Always model your worst-case scenario: what happens if your return rate doubles or you need to run a 20% promotion? The Discount Calculator shows how promotions affect your net margin before you commit to a sale price.
Frequently Asked Questions
Which metric should I focus on gross or net profit?
Net profit is the metric that matters for business viability. Gross profit is useful for understanding product-level economics (is the product worth stocking?) but net profit tells you whether the entire business is sustainable. According to Investopedia, industries with net margins consistently below 5% are considered low-margin and highly vulnerable to cost increases.
What is a good profit margin for Amazon sellers?
Industry benchmarks suggest aiming for a minimum 15% net margin after all Amazon fees (referral fee, FBA fees, advertising). Amazon referral fees range from 6% to 45% depending on category see the Amazon seller fee schedule for current rates.
Does gross profit include shipping?
It depends on your definition of COGS. Inbound shipping (to get the product to you) is typically included in COGS. Outbound shipping (to send to the customer) is usually an operating expense. Be consistent in your definitions so you can compare performance across time periods.