Margin in e-commerce: why it matters more than ever

For years, e-commerce was all about growth: more revenue, more products, more customers. But the market is changing. Competition is increasing, advertising costs are rising, and profitability is under growing pressure. As a result, attention is shifting from revenue to margin. More and more e-commerce entrepreneurs are asking themselves a different question: how much do I actually keep from every euro in revenue?

To answer that question, Peter van de Rijdt, co-founder and COO of Staxxer, shares his vision on margin in e-commerce. Why is the topic receiving more attention? What is a good margin? And which levers does an entrepreneur have to improve it?

About Peter van de Rijdt

Peter van de Rijdt is co-founder and COO of Staxxer. Drawing on his years of experience as an e-commerce entrepreneur with Spy-Fy, he knows how complex administration, VAT, margins, and platform costs can become as a webshop grows. With Staxxer, he helps e-commerce businesses gain more control over their financial administration, European VAT obligations, and e-commerce accounting.

“When I started my first webshop, I focused mainly on revenue. A lot of entrepreneurs did. But as a business grows, you discover that revenue only tells part of the story. What ultimately matters is what’s left over.”

In this article, Peter shares his vision on the development of the e-commerce market, the importance of margin, and the ways entrepreneurs can improve their profitability.

Why margin in e-commerce is becoming increasingly important

Peter sees that the growing attention to margin stems primarily from the maturation of the e-commerce market. “Twenty years ago, e-commerce was still in its pioneer phase. There was little competition, little regulation, and plenty of opportunities. Then came a long growth phase in which online sales grew harder every year. During that period, you could mask many mistakes with revenue growth.” The COVID period, in his view, triggered a final major growth acceleration, with new entrepreneurs entering the market and online sales reaching record highs.

“During COVID, everyone wanted to do something with e-commerce. New webshops, new sellers, and new business models emerged. But after COVID, we saw that not everyone had a sustainable business model.” Today, many traditional webshops find themselves in a mature market, where competition is intensifying, advertising costs are rising, and consumers can compare prices more easily than ever. Moreover, tools for product research, price monitoring, and market analysis have become accessible to virtually every entrepreneur, making an information advantage barely count as a competitive edge.

“The question from the market has changed. In the past, entrepreneurs asked how quickly they could generate revenue. Now they ask where their profit goes and how they can improve their margin.” That makes margin in e-commerce more relevant than ever.

What is margin in e-commerce?

Before we can talk about improving margin, we first need to understand what margin actually is. Peter notices that entrepreneurs use different definitions when talking about margin. “If you ask ten entrepreneurs how they calculate margin, you’ll probably get ten different answers. That’s fine, as long as you consistently use the same method.”

For many e-commerce businesses, the following definition is practically useful: margin = revenue minus direct costs. Direct costs include all costs directly related to the sale of a product, such as:

• Purchase price of the product
• Production costs
• Shipping costs
• Packaging costs
• Marketplace fees
• Payment costs
• Advertising costs
• Return costs

The result of this calculation is called the gross margin. “I often call gross margin the oxygen of your business. It’s the amount left over to cover your fixed costs and ultimately make a profit.”

Why revenue is not the same as profit

From his experience, Peter sees that revenue is still the most important KPI for many entrepreneurs — and that’s understandable. Revenue is visible, easy to measure, and gives a sense of growth. Yet revenue alone says little about how healthy a business truly is. “Revenue feels good. It’s visible and easy to measure. But revenue says surprisingly little about how healthy a business really is.”

He illustrates this with a simple example: suppose you sell a product for €60 including VAT. Excluding VAT, that leaves approximately €50 in revenue. Direct costs such as purchasing, shipping, marketplace fees, advertising costs, and return costs are then deducted, and what remains is the gross margin. Many entrepreneurs are surprised when they fully calculate their actual margin for the first time: products generating a lot of revenue sometimes turn out to be significantly less profitable than expected. That’s why it’s important not only to look at revenue, but especially at what a product actually contributes to the result.

The example below shows what happens when you optimise those same costs:

In situation B, the selling price is lower, but thanks to lower advertising costs and a lower purchase price, the gross margin is significantly higher. This illustrates why reducing direct costs, and not just raising the selling price can be so powerful.

Why return costs and advertising costs are often underestimated

When entrepreneurs calculate their margin, they usually look at the purchase price of a product first. Logical, since purchasing costs are often the largest expense. Yet Peter regularly sees that the smaller cost items receive insufficient attention. “Most entrepreneurs know their purchase price off the top of their head. But when I ask what a return costs on average, or how much advertising spend goes into each sold product, things quickly get harder.”

Return costs can have a major impact on the profitability of a webshop — not only because a returned shipment costs money, but also because it involves additional handling, customer service, and sometimes even depreciation of products. Advertising costs are also regularly underestimated. Many entrepreneurs optimise their campaigns on revenue or ROAS (Return On Ad Spend), but while those are useful KPIs, they don’t tell the full story. “A campaign with a high ROAS looks successful. But if the product itself has little margin, it can still be a poor business case.” That’s why it’s important to always include advertising costs in the calculation of product margins, to get a realistic picture of what a product actually yields.

What is a good margin in e-commerce?

One of the most frequently asked questions in e-commerce is: what is a good margin? Peter understands the question but immediately sees a challenge. “Entrepreneurs often look for one percentage that applies to everyone. That simply doesn’t exist.” What constitutes a good margin depends on the business model, the market, and the risks a company takes on.

A brand with its own products typically has a different cost structure than a reseller, and trend products require a different approach than established product categories. A private label brand often invests more in product development, branding, inventory, and marketing — and that generally comes with a higher margin. Resellers can often work with lower margins, provided they have set up their processes very efficiently and operate at sufficient volume. Trend products sometimes show high margins but carry more risk, as a trend can pass quickly or be copied by competitors.

According to Peter, a good margin is therefore primarily one that provides sufficient room for healthy business operations. “A margin is good when it allows you to cover your fixed costs, invest in growth, and ultimately retain profit.”

How can you improve margin in e-commerce?

Peter sees in practice that entrepreneurs have two main levers to improve their margin. “You can earn more from a product or spend less to sell it.” In practice, that means: raise the selling price or reduce direct costs.

Raising the selling price

A price increase often seems like the easiest way to improve margin. Options include fewer discount promotions, offering bundles, introducing premium variants, reconsidering free shipping, or creating stronger brand positioning. Yet Peter cautions against oversimplified assumptions. “Many entrepreneurs think a price increase feeds fully back into the margin. In reality, some costs rise with it.” Think of VAT, marketplace fees, and payment costs that are often based on a percentage of the selling price. Additionally, a higher price can affect conversion rates and sales volumes. That doesn’t mean price increases are wrong, but they should be carefully calculated.

Reducing direct costs

The second lever is reducing direct costs. While this often requires more effort, Peter regularly sees the biggest opportunities arise here. “A lot of margin leaks away through all kinds of small cost items that haven’t been critically reviewed for years.” Examples of cost optimisation include negotiating better purchasing terms, exploring alternative suppliers, comparing shipping contracts, optimising packaging, reducing return rates, steering advertising on profit rather than revenue alone, and better understanding marketplace fee structures. Often the gain isn’t in one big saving, but in dozens of small improvements that together make a big difference.

Why cost reduction often has more impact than a price increase

In conversations with e-commerce entrepreneurs, Peter notices that price increases are often mentioned first when it comes to improving profitability. That’s understandable, because adjusting a price seems simpler than optimising an entire operation. Yet in practice, the opposite is often true. “Every euro you save on direct costs comes back almost entirely into your margin.” With a price increase, other costs often rise alongside it, and there’s always the risk that customers drop off or order less. Savings on purchasing, shipping, or fulfilment don’t have that downside. That’s why Peter sees cost optimisation as one of the most powerful ways to improve the profitability of a webshop.

The leverage effect of margin on profit

Perhaps the most important insight around margin is the leverage effect it creates on profit. Many entrepreneurs underestimate how much impact a relatively small improvement can have. “A few percentage points of extra margin doesn’t sound impressive. Until you calculate what it does to your profit.”

Suppose a webshop generates €1 million in revenue with a gross margin of 40%, giving a total gross margin of €400,000. With fixed costs of €300,000, €100,000 in profit remains. If the gross margin then improves from 40% to 43%, the gross margin rises to €430,000, while fixed costs stay the same. As a result, profit rises from €100,000 to €130,000 — an improvement of just three percentage points results in 30% more profit. “That’s exactly why margin is such a powerful steering instrument. Small improvements can have an enormous impact.”

The future of e-commerce revolves around profitability

According to Peter, e-commerce is still an attractive market, but the rules of the game have changed. Where many companies could previously grow on the back of a fast-growing market, entrepreneurs today increasingly need to understand how their business is actually performing. Competition is intensifying, consumers compare prices more easily than ever, and advertising costs continue to rise — making profitability ever more important.

“The companies that will be successful in the coming years are not necessarily those that grow the fastest. They are the ones that know exactly what a sale yields and where their margin goes.” This has made margin in e-commerce much more than a financial metric. It is one of the most important steering instruments for sustainable growth, healthy profitability, and a future-proof e-commerce business.

Conclusion: from revenue thinking to margin thinking

For years, e-commerce was all about growth: more traffic, more orders, more revenue. But the market has matured, and with that, the focus is increasingly shifting to profitability. Margin plays a central role in that. By gaining insight into direct costs, returns, advertising costs, and platform fees, a more realistic picture emerges of what products actually contribute to the result. Entrepreneurs who actively steer on margin often discover that small improvements have a surprisingly large effect on their profit.

Or as Peter sums it up: “Revenue matters. But ultimately, it’s not about what you sell. It’s about what you keep.”