How to Calculate Gross Margin by Product for eCommerce — and Why It Changes Everything

Why revenue by product misleads you#

Revenue is the metric most eCommerce founders optimise for. But revenue without margin is a fundamentally incomplete picture. A high-revenue product with thin margins might be your worst-performing product in profit terms. A modest-revenue product with excellent margins might be your true profit engine. Building strategy on revenue alone is navigating with a map that is missing half the roads.

The components of true gross margin per SKU#

True gross margin per SKU is selling price minus all directly attributable costs: cost of goods (supplier price), freight cost per unit (total shipping divided by units shipped), import duty per unit (duty rate on customs value), FX cost (exchange rate margin impact), platform fees (Amazon referral fee, Shopify payment processing), fulfilment cost per unit (FBA fee, 3PL pick and pack), and returns cost (processing cost multiplied by return rate). Each cost is real and each reduces the margin you actually retain.

How to build your SKU margin model#

For each SKU, enter: supplier cost, freight cost per unit from your last shipment total divided by units, import duty rate from your commodity code, the exchange rate used to pay the supplier, platform fee percentage, and your fulfilment cost. The resulting net margin per unit multiplied by monthly sales volume gives you the true monthly profit contribution of each product. Rank your SKUs by total monthly profit contribution — the result will surprise you.

What to do with the results#

Products in the bottom quartile of profit contribution should be reviewed for discontinuation or margin improvement. Improvement levers include negotiating better supplier prices, switching to a lower-cost fulfilment option, increasing selling price if the market allows, or reducing advertising spend. Products in the top quartile are your profit drivers — they should receive preferential advertising investment, priority stock allocation, and active inventory management to prevent stockouts.

How margin changes with volume and exchange rates#

Two factors move your SKU margins continuously without you changing anything. Volume: larger shipments reduce freight cost per unit. Exchange rates: if you buy in USD or CNY and sterling weakens, your cost of goods in GBP rises. A 10% sterling depreciation against the dollar increases cost of goods by 10% on all dollar-denominated imports — on a 30% gross margin product this reduces margin to 23%. This dynamic is invisible unless you model it.

Automating gross margin tracking with AskBiz#

AskBiz Landed Cost Calculator automates this process. Connect your store, input your cost data, and AskBiz maintains a live gross margin model by product that updates as exchange rates move and sales volumes change. Ask it: which 5 products have the lowest gross margin this month, how has my average margin changed since I switched suppliers, which products would become loss-making if sterling fell 10% against the yuan.