Analysing Gross Margin by Product

Gross margin is the percentage of revenue left after subtracting the direct cost of the product (cost of goods sold — COGS). A product that sells for £50 and costs £20 to produce and ship has a gross margin of 60%.

Gross margin % = (Revenue − COGS) / Revenue × 100

Gross margin is not the same as profit — it does not include overheads like rent, salaries, or marketing. But it is the clearest measure of how well each product is priced relative to its cost.

Go to Products → Margin Analysis to see gross margin broken down by product, category, or channel.

The table shows:

• Revenue
• COGS (from your connected inventory/accounting data)
• Gross profit £
• Gross margin %
• Units sold
• Margin trend (last 3 months)

Sort by Gross Margin % ascending to surface your worst-performing products first.

1. Underpricing — your price was set before costs increased (inflation, FX, shipping)

2. High returns rate — returns eat into effective margin; a product with 60% gross margin and 20% returns has an effective margin of ~40–48%

3. High landed cost — shipping, duties, or handling costs are higher than assumed at pricing

4. High COGS — supplier price increased without a corresponding price increase

5. Promotional discount leakage — heavy discounting has eroded average selling price below target

For each low-margin product, you have four choices:

1. Raise the price — simplest fix if competitive dynamics allow it. Test with a small segment first.

2. Reduce COGS — negotiate with your supplier, switch supplier, simplify the product, or source components differently. Use the Landed Cost Calculator to model alternatives.

3. Reduce associated costs — improve returns rate (better product descriptions, sizing guides), reduce packaging cost, switch to a cheaper shipping carrier for this product.

4. Discontinue or phase out — if a product cannot be made profitable and it isn't a strategic traffic driver, consider removing it. Low-margin products consume your time and inventory capital without delivering return.

Do not default to discounting to drive volume on already low-margin products — this accelerates losses.

Your blended gross margin (across all products) can change even if individual product margins stay constant — because the sales mix changes. If your high-margin products grow faster than your low-margin ones, blended margin improves. If customers shift toward lower-margin products (e.g. due to a promotion), blended margin falls.

AskBiz tracks sales mix automatically. Ask: *'How has my product mix changed over the last 6 months and what is the margin impact?'* to see this analysis.