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Profit Margin — The percentage of a sale that’s left over as profit after covering the cost of the product.
What Is Profit Margin?
For example, if an item sells for $50 and costs $20 to source and ship, the profit margin is 60%. It’s different from markup, which measures profit against cost instead of against the sale price.
How to Calculate Profit Margin
Formula: (Sale Price − Cost) ÷ Sale Price × 100.
Profit Margin vs. Markup
| Profit Margin | Markup | |
|---|---|---|
| Measured against | Sale price | Cost price |
| Formula | (Price − Cost) ÷ Price | (Price − Cost) ÷ Cost |
| Typical use | Tracking profitability | Setting a price |
Why Profit Margin Matters for Dropshippers
Margins in dropshipping are usually thinner than in traditional retail, so tracking margin — not just revenue — is what tells you whether a product is actually worth selling once ad spend and fees are factored in.
FAQ
What's a good profit margin for dropshipping?
Many dropshippers aim for at least 20-30% after product cost, though what matters most is what’s left after ad spend and fees, not just the product margin alone.
Does profit margin include shipping and ad costs?
The basic formula only accounts for product cost. To see your real take-home profit, subtract shipping, transaction fees, and advertising separately.
Is a higher margin always better?
Not necessarily — a high margin on a product nobody buys is worth less than a moderate margin on a fast seller.