Every example and amount on this page is illustrative. It shows the method and is not a benchmark, a quote or advice.
What Ecommerce Profit Margin Measured in 2023
An ecommerce profit margin in Canada in 2023 measured profit as a proportion of sales during a defined period. It was not the dollar amount left in the bank, the markup on a product, or the store’s total Shopify revenue. A useful margin view states which sales are included, which costs are deducted, and whether the result covers an order, product, collection, channel or the whole business. Returns, refunds, cancellations and discounts need consistent treatment so the sales figure represents the trading activity being assessed.
Canadian tax treatment matters because GST/HST charged to a registered business’s customer is generally collected for the government rather than earned revenue. It should normally be excluded from both sales and profit when assessing margin. GST/HST paid on eligible business purchases may be recoverable through input tax credits, so it generally should not be treated as a permanent cost. Non-recoverable sales taxes, duties or other taxes can reduce profit and must be handled consistently with the merchant’s accounting treatment. The applicable treatment can depend on registration status, province, product and transaction type.
The remaining selling costs depend on the question the margin is meant to answer. They can include product cost, packaging, payment processing, Shopify or marketplace fees, shipping paid by the merchant, discounts, refunds, fulfilment, advertising and operating overhead. A product margin can show whether an item is priced above its direct costs; a contribution view can show what remains after costs that change with the sale, including advertising; and a net view can show the business result after broader expenses. These are different lenses, not competing definitions. For Canadian operators, the right 2023 margin is therefore a clearly labelled, tax-consistent measure based on the costs relevant to the decision.
Gross, Contribution and Net Margin Answer Different Questions
Gross margin answers: “Does the product make money before the costs of selling and running the business?” It compares realized sales with product cost, such as manufacturing or wholesale cost. Use it when setting or reviewing product prices, negotiating supplier costs, and comparing the economics of individual products. A strong gross margin can still produce an unprofitable order if fulfilment, payment fees, discounts or advertising consume the difference. See Gross Margin vs Net Margin in Ecommerce for the distinction.
Contribution margin answers: “What does this order, product or channel contribute after the costs that move with sales?” Depending on the reporting policy, that can include fulfilment, payment processing, shipping subsidies, returns and advertising. It is the useful measure for order-level decisions, product and collection comparisons, and deciding whether a paid channel is contributing after ad spend. A product can have an attractive gross margin but weak contribution margin because its acquisition cost or fulfilment cost is high. Contribution margin is explained in more detail in Ecommerce Contribution Margin.
Net margin answers: “What proportion of sales remains after the business’s full operating cost base?” It includes costs such as salaries, software, rent, professional fees and other overheads, alongside the direct and variable costs already considered. Net margin is therefore the measure for assessing overall business performance and whether the operating model is profitable, but it is less precise for deciding whether one additional order or campaign is worth taking.
These measures should be read together rather than ranked. Gross margin helps identify pricing and product-cost problems; contribution margin shows whether selling more through a product or channel adds economic value; net margin shows whether the entire company converts that value into profit. Keep the cost definitions consistent across periods and comparisons, especially for advertising, returns and shared overhead.
| Measure | Primary question | Useful for |
|---|---|---|
| Gross margin | Is the product priced above its product cost? | Product pricing and supplier-cost review |
| Contribution margin | What remains after sales-linked costs? | Order decisions, product analysis and channel spending |
| Net margin | Is the whole business profitable after operating costs? | Overall financial performance |
The Formula, Stated Plainly
Start with the amount the store actually earned from completed sales during the period, in one currency. A plain revenue formula is: revenue = product and shipping amounts charged − discounts − refunds. Discounts reduce the selling price; they are not a separate cost. Refunds reduce revenue when money is returned, including refunded shipping where applicable. Shipping revenue belongs in revenue when the customer pays it, while the carrier charge belongs in costs.
Taxes need a deliberate treatment. GST, HST, PST or QST collected for remittance are generally kept outside revenue rather than treated as sales income. The exact treatment depends on the business’s accounting method and circumstances, so this is a measurement convention for analysis, not legal or tax advice. Apply the same rule consistently across periods. For a clean operating view, count delivered orders as revenue and exclude cancelled or returned orders from realized sales; ORVX uses that approach.
Cost is the money required to produce, sell and operate the business during the same period. Product cost, including the chosen landed-cost components, is cost of goods sold (COGS). Gross profit = revenue − COGS. Contribution profit = revenue − COGS − other costs that vary with the order, such as payment processing, fulfilment and advertising; the contribution margin formula makes that narrower decision view explicit. Net profit = revenue − COGS − operating expenses and other costs. Margin converts any profit measure into a percentage: profit margin = profit ÷ revenue × 100. Use gross margin to assess product economics, contribution margin to assess selling and acquisition decisions, and net margin to assess the business as a whole.
- Gross margin = (revenue − COGS) ÷ revenue × 100
- Contribution margin = (revenue − COGS − variable selling costs) ÷ revenue × 100
- Net margin = net profit ÷ revenue × 100
A Worked CAD Example for One Shopify Order
Assume one Ontario Shopify order priced in CAD. The product sells for $120, the customer receives a $20 discount, and the store collects 13% HST on the discounted amount. The customer pays $113: $120 − $20 = $100 of product revenue, plus $13 HST. The $13 is collected for remittance, so it is not sales revenue or profit.
Assume product cost is $35, fulfilment is $12, and the payment provider charges 2.9% plus $0.30 on the $113 charged. That payment cost is $3.58: ($113 × 2.9%) + $0.30. Paid marketing attributable to the order is $18. For the net-margin illustration, allocate another $10 of operating overhead to the order.
On the $100 revenue base, gross profit is $65 ($100 − $35), producing a 65% gross margin. Contribution profit is $31.42 after product cost, fulfilment, payment and advertising ($100 − $35 − $12 − $3.58 − $18), or 31.42%. After the $10 overhead allocation, net profit is $21.42 and net margin is 21.42%. The percentages therefore use product revenue, not the $113 collected from the customer; including HST would make the denominator and the comparison misleading.
The resulting measures answer different operating questions. Gross margin shows product economics before selling costs. Contribution margin shows what remains after variable costs, including payment, fulfilment and advertising. Net margin includes the allocated overhead as well. If the store uses only one of these measures, it can mistake a product that is gross-profitable for an order that is not profitable after acquisition and operating costs.
The $10 overhead figure is an allocation for analysis, not a separate charge shown at checkout. Changing the allocation changes net margin without changing the order’s gross or contribution margin. Likewise, this order-level result does not establish a period-wide margin: refunds, cancellations, other orders, fixed costs and unassigned marketing still need consistent treatment across the reporting period.
| Line item | Arithmetic | CAD |
|---|---|---|
| List product price | — | $120.00 |
| Discount | −$20.00 | −$20.00 |
| Realized product revenue | $120 − $20 | $100.00 |
| HST collected | $100 × 13% | $13.00 |
| Customer payment | $100 + $13 | $113.00 |
| Product cost | — | −$35.00 |
| Gross profit | $100 − $35 | $65.00 |
| Gross margin | $65 ÷ $100 | 65.0% |
| Payment fee | ($113 × 2.9%) + $0.30 | −$3.58 |
| Fulfilment | — | −$12.00 |
| Marketing | — | −$18.00 |
| Contribution profit | $65 − $3.58 − $12 − $18 | $31.42 |
| Contribution margin | $31.42 ÷ $100 | 31.4% |
| Allocated overhead | — | −$10.00 |
| Net profit | $31.42 − $10 | $21.42 |
| Net margin | $21.42 ÷ $100 | 21.4% |
The Mistakes That Make the Number Wrong
A margin can be mathematically correct and still answer the wrong business question. The first distinction is definition: gross margin excludes operating costs, contribution margin may include fulfilment, payment and advertising costs, and net margin includes the overhead assigned to the period. Compare like with like before deciding that two Canadian stores have different economics.
Tax-inclusive sales are a common source of error. If a customer pays $113 including 13% HST, the store’s revenue is not $113; the tax collected is generally a liability. The same rule applies to GST or QST. Returns and cancellations also need a defined treatment. A margin based on placed orders will look stronger than one based on completed, delivered orders after refunds. Keep returned revenue, refund value and return costs visible rather than quietly leaving them in sales.
Do not leave out costs that sit between the order and the bank deposit. Include shipping subsidies when the store pays more to fulfil an order than it charges the customer, payment-processing fees, marketplace commissions and applicable advertising costs. Allocate rent, salaries, software and other overhead consistently if you are calculating net margin. An unallocated overhead line can make a product appear profitable while the business is not.
Inventory cost timing can also change the result. Cash paid to buy inventory is not automatically the period’s cost of goods sold; use the cost of units sold for an accrual-style margin, and separately track remaining stock value. Apply a consistent currency conversion date and rate to international sales, costs and fees. Finally, combine Shopify, marketplaces, wholesale and retail only after normalizing revenue recognition, returns, fees and currency. These are calculation errors when the treatment is accidental; they are business-definition differences when the treatment is explicit. ORVX keeps each trading currency separate and calculates realized revenue from delivered orders, helping avoid silent mixing. Shopify’s built-in view may not provide the same profitability detail; see Shopify Dashboard Limitations.
What to Do With the Answer
Use gross margin to decide whether the product price covers its direct product cost. For illustration only, a CAD$100 realized sale with CAD$40 in product cost produces CAD$60 gross profit, or a 60% gross margin. If that margin is below the level needed to cover fulfilment, payment fees and operating costs, review the price, supplier cost or product configuration. Gross margin is the right measure for product economics, not for deciding how much to spend on acquisition.
Use contribution margin after advertising to set an acquisition-cost limit. If the same order has CAD$20 in advertising and CAD$10 in variable selling costs, CAD$30 remains after those costs, or 30% contribution margin. A customer acquisition cost above the contribution available from the first order may require a different campaign, offer or retention assumption. Review contribution by product and collection rather than letting a store-wide average hide an unprofitable SKU or marketplace channel; contribution margin analysis explains this distinction.
Use net margin to review the operating model and forecast cash, including overhead that product-level metrics do not capture. A weak monthly net margin may call for cost control or a cash plan, not an immediate price change. Likewise, a strong month can reflect timing, a promotion or unusually low returns. Compare completed months, product-level contribution, customer repeat behaviour and return effects before acting. ORVX can forecast a coming period from a merchant’s completed months and show the method’s backtested error, but it does not predict that a particular action will produce a specific result.
- Price or product economics: act on gross margin.
- Advertising limit or campaign review: act on contribution after advertising.
- SKU or marketplace review: compare product- and collection-level contribution, not only revenue.
- Overhead and cash planning: act on net margin across several comparable periods.
- Do not use one period or one margin for every decision: a product can be gross-profitable, acquisition-unprofitable and still appear acceptable in a strong store-wide month.
A Canadian ecommerce margin is useful only when its revenue base, cost definitions and tax treatment are explicit. Calculate gross margin for product economics, contribution margin for order and marketing decisions, and net margin for the business as a whole, then compare like with like across periods, SKUs and channels.
General information only: tax, duty and import rules change and depend on your situation, so check with an accountant or the official source before acting.