How to Track Profit Margins for Your Shopify Store in 2025

Tracking your profit margins is essential for monitoring and maintaining business growth. But how can you learn to do this as an e-commerce business owner who hasn’t been schooled in accounting? In this guide, we will explore ways that you can use key metrics, tools, and strategies to monitor and manage your profitability.

Understanding Profit Margins and Key Metrics

At this point, you may be wondering, “What is a profit margin”? Profit margin is a financial metric that shows how much of your revenue is left as profit after certain expenses have been deducted. It tells you how efficiently your business turns sales into actual earnings and helps to asses your business's profitability.

On the other hand, to say that your profit margin is a “financial metric” means that it is a measurable amount based on numbers and facts rather than opinions.

What is a Good Net Profit Margin?

A good net profit margin is not the same across all industries. Some industries thrive with low sales volumes but high profit margins. Some examples are luxury goods dealers, legal and financial consulting firms, and medical goods retailers.

Still, there are industries whose approach is selling mass quantities, but with a low profit margin. These industries include grocery stores, consumer electronics, and fast-food chains.

Determining a good profit margin for your business will consist of careful consideration of your industry.

• Gross margin vs. operating profit—Understanding the difference between gross margin and operating profit is crucial. Gross margin is revenue minus the cost of goods sold. Operating profit is revenue minus the cost of goods sold and various operational expenses such as salaries and marketing.

• Importance of average profit margin—Tracking your average profit margin in various areas (gross, operating, net) is a good way to assess your business's strengths and weaknesses. This can be used to analyze seasonal trends or areas of improvement throughout the year.

Key Metrics for Shopify Store Owners

At this point, it is essential to glance over key metrics for Shopify store owners.

• Total revenue - total income from all sales.

• Net sales – total sales minus discounts, returns, and allowances.

• Average order value (AOV) – The higher the AOV, the greater the revenue per transaction. Bundling products can help increase AOV and boost sales.

• Variable costs – costs that increase with sales volume.

• Operating expenses - Rent, labor costs, subscriptions, and marketing fall under this category. These fixed or semi-variable expenses directly affect your bottom line.

• Cost of goods sold (COGS) – The cost of production or acquiring products. Better sourcing can lead to a decrease in COGS

How to Calculate Profit Margins for Your Shopify Business

Now that you understand some of the key metrics, we can discuss calculating profit margin.

Step-by-Step Guide to Calculating Profit

• Include product costs and shipping fees—Calculating COGS appropriately includes both the purchase and/or the production cost and the shipping fees.

• Account for labor and overhead costs—Factor in all operational costs, including wages, rent, Shopify fees, and software subscriptions. Overhead adds up quickly, so ensure it’s accurately tracked.

• Factor in payment processing fees—Total sales and net sales can be misconstrued when payment fees for processors such as Shopify Payments, Stripe, and PayPal are not factored in.

Using Free Tools and Profit Margin Calculators

• Benefits of tools like TrueProfit and SimplyCost – Tools such as these can help e-commerce business owners by automating much of the profit calculations.

• How a free plan or free trial can help – If you want to explore add-ons like TrueProfit or SimplyCost, both tools currently offer free trials.

• Generating accurate profit reports from these apps is made easy. They both pull reports directly from your Shopify store. They can also help with budgeting and future planning with built-in forecasting tools.

Tools and Strategies to Track Profit Effectively

Beneficial pricing strategies are often developed through technology and marketing efforts.

Best Apps for Shopify Store Owners

• Profit analytics and detailed business metrics can be tracked with tools such as BeProfit and Lifetimely. These apps are more diverse than the basic analytic ones. By providing customer lifetime value, cohort tracking and ad attribution, they can help determine where your profit is coming from.

• Inventory management and cost management—Inventory Planner and QuickBooks Commerce can help business owners manage stock levels and supplier costs.

• Apps available in the Shopify app store – To find apps in the Shopify store that are a good fit for you, you may want to use keywords like “COGS,” “Profit tracking,” or “Finance.”

Marketing Efforts to Increase Sales

Here are some tips for boosting sales through marketing efforts and increasing profit margins.

• Google Ads and other marketing strategies – When using paid advertising such as Google Ads or Meta Ads, ensure that you closely monitor your ROAS (return on ad spend).

• Lowering marketing cost and acquisition cost – Email marketing, SMS campaigns, and content marketing can be effective ways to lower your reliance on pricey paid advertising. It can also help build organic traffic and reduce customer acquisition costs (CAC) over time.

• Improving conversion rate and customer experience—Improving your conversion rate is essentially getting more out of the traffic you already have. Optimizing your load times and mobile friendliness, having strong customer reviews, and having clear shipping policies are all ways of improving your conversion rate.

Overcoming Challenges in Profit Tracking

Managing Variable and Operational Costs

• Handling production and operational costs - As inflation rises, so do product costs. To reduce costs, consider bulk purchasing, renegotiating contracts, or using local suppliers.

• Managing shipping costs and exchange rates - If you are a global dealer, you are likely well aware of fluctuating exchange rates and shipping delays. Services such as Easyship can be used to compare carrier rates and fine-tune delivery logistics.

• Addressing credit card and payment fees – You may want to consider encouraging your customers to use preferred payment methods. Direct bank transfers and Shopify Payments are a couple of examples.

Making Smart Business Decisions

• Finding the sweet spot with your pricing plan - Pricing too low limits profit, while pricing too high may reduce conversions. Use A/B testing to experiment with pricing models and monitor how they affect sales volume and profit.

• Improving customer service for retention - Retaining customers is much cheaper than acquiring new ones. Offering loyalty programs and responsive support to customer inquiries is an essential component of creating a loyal customer base.

• Adjusting your business model for sustainable growth - If profit margins are consistently thin, consider shifting from a dropshipping business to private labeling, or explore subscription models and bundling to enhance revenue predictability.

Improving Your Shopify Store’s Financial Health

• Focus on creating a successful online store - While profit margins are important, the discussion must center on more than numbers. The goal must be to build a sustainable brand.

• Track profit to make data-driven business decisions - As you learn to track various profit margins, you will also learn to make healthy business decisions based on those margins.

This How to Track Profit Margins for Your Shopify Store in 2025 guide was intended to empower Shopify business owners with a DIY approach to tracking profit margins for their online business. However, not everyone has the time or desire to do this. If you would like help assessing your business's strengths and weaknesses, don’t hesitate to contact us. We would be glad to help!