Profit margin analyser
In plain English
Most shops work out margin like this:
Sell for £50, costs £20 to buy → 60% margin
That's gross margin, and it's the number most people quote. It's also missing most of the costs.
By the time that £50 order is complete, you've also paid:
- Returns — some proportion comes back
- Payment fees — the processor's cut on every transaction
- Advertising — what you spent acquiring the customer
- Shipping — picking, packing, and postage
Subtract those and you get true margin, which is what you actually keep. It's often dramatically lower:
Sell for £50
Cost to buy −£20.00
Returns (3%) −£1.50
Payment fee (2.9%) −£1.75
Advertising (8%) −£4.00
Shipping −£4.50
────────
True profit £18.25 = 36.5%, not 60%
The difference between the two is the "drain." For most shops it's the most uncomfortable number on the screen, and the most useful — because until you can see it, you can't manage it.
How to use it
- Click "Profit margin" in the left-hand menu.
- Enter your product costs. If the app already knows them, click "Use saved costs" to fill the table.
- Check the assumptions — return rate, payment fee, ad spend, shipping. Adjust to match your business.
- Look at the banding. Anything in "Danger" is barely profitable or losing money.
- Read the drain figure. That's the gap between what you thought you made and what you did.
- Work down the recommended actions — promote, reprice, or hold.
- Export to CSV if you want it in a spreadsheet.
⏱ ~20 min for a first pass · 💳 Pro+ · 🎯 Know which products actually make money
Why this matters for your business
There's a specific failure that quietly kills otherwise healthy shops: growing the products that lose money.
It happens because gross margin is what's visible. A product with 60% gross margin looks like a winner, so it gets more ad spend, more prominence, and more promotion. But if it's bulky (high shipping), frequently returned (sizing), and expensive to acquire customers for (competitive category), its true margin might be 4%. Every extra unit sold makes almost nothing, and the advertising to sell it might make it negative.
Meanwhile a product with 35% gross margin that's small, rarely returned, and largely sells organically might have a true margin of 28% — nearly seven times better. But it doesn't look impressive in the gross column, so it gets no attention.
This screen makes the comparison visible. The rankings frequently reverse once real costs are included, and the products people were about to discontinue turn out to be the profitable ones.
Two of the four costs deserve special mention because they're the ones people forget. Shipping is a fixed cost per unit, which means it destroys margin on cheap items — a £4.50 shipping cost on a £12 product is 37% before anything else. And returns cost you twice: the revenue reverses, and you've still paid to acquire, pick, pack, and ship.
What this typically unlocks
| What you get | Typical result |
|---|---|
| Products that lose money at gross-margin scale | Identified, often several |
| The gap between gross and true margin | Quantified — usually 15–30 points |
| Ad spend on unprofitable products | Stopped |
| Pricing decisions | Based on what you keep, not what you charge |
| Profit after a first clean-up | Often up sharply on flat revenue |
What you actually get
The four costs subtracted
| Cost | Default assumption | Adjust if |
|---|---|---|
| Returns | 3% of orders | You sell apparel (higher) or consumables (lower) |
| Payment fees | 2.9% + 30p per transaction | You use a different processor |
| Advertising | 8% of revenue | You're heavily paid, or heavily organic |
| Shipping | £4.50 per unit | Your items are large, small, or you offer free shipping |
Adjust these to match your business. The defaults are reasonable starting points, not facts about you. Getting the return rate and shipping cost right matters most — they're the two that vary most between shops.
The health bands
| Band | True margin | What it means |
|---|---|---|
| Excellent | 40%+ | Genuinely profitable. Push these |
| Good | 20–39% | Solid, worth growing |
| Fair | 10–19% | Thin. Vulnerable to any cost rise |
| Danger | Under 10% | Barely profitable or losing money |
| No cost data | — | Enter the cost to see anything useful |
"Danger" doesn't necessarily mean stop selling it. A loss leader that reliably brings customers who buy profitable things can be worth keeping. What it means is know it's a loss leader, and treat it as an acquisition cost rather than a product.
The drain
The gap between gross profit and true profit, in money.
Gross profit £18,400
True profit £6,120
───────
Drain £12,280
Broken down by cause, so you can see where it goes. Most shops find one or two causes dominate — usually shipping on low-priced items, or advertising on competitive ones.
Recommended actions
Each product gets one:
| Action | When | What to do |
|---|---|---|
| Promote | Good traffic, low conversion, healthy margin | Give it more prominence — it can take it |
| Reprice up | High revenue, thin margin | Small increase. Volume rarely drops proportionally |
| Hold | Performing as expected | Leave it alone |
Each comes with an estimated monthly profit gain, so you can work the biggest first.
Price-change simulation
Before changing a price, you can simulate it. The tool estimates the volume effect using a standard price sensitivity assumption for non-luxury retail — roughly, a 10% price rise loses about 12% of volume.
Which is often profitable anyway. On a thin-margin product, raising price 10% and losing 12% of units frequently increases total profit, because you've removed the least profitable sales.
Treat the simulation as a guide, then test properly on one product before rolling out.
How it works (without the technical bits)
Real merchant scenarios
Scenario A — The bestseller that lost money
Setup. Homeware brand's top product by revenue: a £34 ceramic planter, 62% gross margin. It got the most ad spend and the most prominence.
True margin analysis:
Price £34.00
Cost to buy −£12.90
Returns (11% — fragile) −£3.74
Payment fee −£1.29
Advertising (14%) −£4.76
Shipping (bulky) −£8.20
────────
True profit £3.11 = 9.1% DANGER
Two problems. It was fragile, so returns ran at 11% rather than 3%. And it was bulky, so shipping cost £8.20 rather than £4.50.
Their second-best product, a £28 set of coasters at 51% gross margin, came out at 34% true margin — nearly four times better.
Action. Improved packaging (returns 11% → 4%), raised the planter to £39, and shifted ad spend to the coasters.
| Before | After | |
|---|---|---|
| Planter true margin | 9.1% | 22.4% |
| Monthly profit | £14,200 | £23,800 |
| Revenue | £91,000 | £88,000 |
Revenue fell slightly. Profit rose 68%.
Scenario B — Shipping destroying cheap items
Setup. Merchant with a range of small accessories, £8–£15, all showing 55–65% gross margin.
At £4.50 shipping per unit:
| Product | Price | Gross margin | True margin |
|---|---|---|---|
| Keyring | £8 | 62% | −4% |
| Bookmark set | £11 | 58% | 7% |
| Small pouch | £15 | 55% | 19% |
The keyring lost money on every single sale.
Why gross margin hid it. A fixed £4.50 shipping cost is 56% of an £8 product and 30% of a £15 one. Gross margin treats them identically; true margin doesn't.
Action. Introduced a £25 minimum for free shipping and bundled the small items into multi-packs.
Result: average order value up from £16 to £31, and the accessories range moved from an overall loss to 21% true margin.
Scenario C — Raising a price and making more
Setup. Merchant nervous about raising the price of a thin-margin bestseller — £42, 11% true margin, 400 units/month.
Simulation of a 10% rise:
Current £42 × 400 units → £1,848 profit/month
+10% £46.20 × 352 units (−12% volume) → £3,097 profit/month
They tested it on that product alone for six weeks.
| Before | After | |
|---|---|---|
| Price | £42 | £46.20 |
| Units/month | 400 | 371 |
| Revenue | £16,800 | £17,140 |
| True profit | £1,848 | £3,340 |
Volume fell less than predicted, and profit nearly doubled.
Why it works on thin margins. When you keep £4.62 per unit, losing 29 units costs £134 — and the £4.20 extra on 371 units gains £1,558.
Scenario D — Getting the assumptions right
Setup. Merchant ran the analysis with defaults and concluded most of their catalogue was in Danger.
Their actual numbers were quite different:
| Assumption | Default | Theirs |
|---|---|---|
| Return rate | 3% | 0.8% (digital-adjacent products) |
| Advertising | 8% | 2% (almost entirely organic) |
| Shipping | £4.50 | £1.90 (small, light items) |
Re-run with real assumptions:
| Defaults | Their numbers | |
|---|---|---|
| Products in Danger | 47 | 6 |
| Products in Excellent | 3 | 31 |
| Overall true margin | 12% | 34% |
Nearly everything changed.
The lesson. The defaults are a starting point. Spending twenty minutes getting your four assumptions right is the difference between a useful tool and a misleading one.
Scenario E — Keeping a loss leader deliberately
Setup. Merchant found a starter product at 4% true margin — clearly Danger — and prepared to discontinue it.
Before doing so they checked what those customers did next.
| Customers who started with it | Everyone else | |
|---|---|---|
| Bought again within 90 days | 61% | 24% |
| Average lifetime value | £184 | £97 |
It was their best acquisition channel, and cheaper than advertising.
Action. Kept it, and reclassified its 4% margin as an acquisition cost rather than a product problem.
The lesson. Danger means "know what you're doing," not "stop." Check what those customers do next before cutting.
Best practices
✅ Get your four assumptions right first. Scenario D — nothing else matters until they're accurate.
✅ Check shipping cost against small items specifically. It's the most common hidden killer.
✅ Look at true margin, not gross, when allocating ad spend.
✅ Simulate before repricing, then test on one product.
✅ Check what Danger products lead to before cutting them — Scenario E.
✅ Re-run after any supplier cost change. Margins move silently.
❌ Don't allocate ad budget on gross margin. Scenario A.
❌ Don't assume the defaults describe your business.
❌ Don't reprice your whole catalogue at once. Test on one.
❌ Don't ignore returns as a cost. They reverse the revenue and keep the acquisition cost.
Plan tiers
| Capability | Free | Starter | Pro | Agency | Enterprise |
|---|---|---|---|---|---|
| True margin calculation | — | — | ✓ | ✓ | ✓ |
| Health banding | — | — | ✓ | ✓ | ✓ |
| Drain breakdown | — | — | ✓ | ✓ | ✓ |
| Editable assumptions | — | — | ✓ | ✓ | ✓ |
| Use saved product costs | — | — | ✓ | ✓ | ✓ |
| Recommended actions | — | — | ✓ | ✓ | ✓ |
| Price-change simulation | — | — | ✓ | ✓ | ✓ |
| CSV export | — | — | ✓ | ✓ | ✓ |
| Multi-store margin roll-up | — | — | — | ✓ | ✓ |
Frequently asked
What's the difference between gross and true margin? Gross subtracts only what the product cost you to buy. True also subtracts returns, payment fees, advertising, and shipping.
Where do product costs come from? From your product records if you've entered them — click "Use saved costs." Otherwise enter them manually.
Should I change the default assumptions? Yes. Return rate and shipping cost especially. Scenario D shows how much it matters.
Why do cheap products look so bad? Shipping is a fixed cost per unit, so it takes a much larger share of a low price. Bundles and minimum order values are the usual fix.
Should I stop selling Danger products? Not automatically. Check what those customers buy next — Scenario E.
How accurate is the price simulation? It uses a standard sensitivity assumption for non-luxury retail. Treat it as a guide and test on one product.
What if I offer free shipping? You're still paying it. Enter your real per-unit cost — free to the customer isn't free to you.
How often should I re-run this? Quarterly, and after any supplier cost change or shipping-rate change.
See also
- Inventory & pricing — where to change prices
- Revenue Leaks — returns and refunds as recoverable money
- Revenue command center — the revenue side
- Offer Lab — bundling to fix small-item shipping costs
- Discount Learner — protecting margin on discounts
- Customer Voice — why products are being returned
- Revenue & ROAS — advertising cost in context