Gross vs Net Profit
Gross profit subtracts only what the goods cost you. Net profit subtracts everything else too — fees, shipping, software, your own wage. Sellers who track gross profit believe they are profitable considerably longer than they actually are.
The three layers, on one $50 sale
| Layer | Calculation | Result |
|---|---|---|
| Revenue | Sale price | $50.00 |
| Gross profit | − $18 product cost | $32.00 |
| Operating profit | − $3.25 fees − $6 shipping | $22.75 |
| Net profit | − $8 allocated overhead | $14.75 |
The gross figure is more than double the net one. Both are correct; only one tells you what you earned.
What each layer is actually for
- Gross profit compares products against each other. It answers "which of my items is structurally best?"
- Operating profit shows whether your selling process is efficient — high fees or subsidised shipping show up here.
- Net profit is the only figure that answers "am I making money?"
Why the mistake is so common online
Marketplace dashboards emphasise revenue and sometimes gross figures. Fees are deducted in a separate statement, postage is paid from a different account, and subscriptions leave on a different day of the month. The costs are real but scattered, so a seller can watch a healthy-looking dashboard while their bank balance does not move.
A ten-minute fix
Once a month, take total money received, subtract every business payment out of your account — including software, postage and platform charges — and divide by revenue. That is your true net margin, and it is usually a smaller number than expected. Do it monthly and the trend tells you more than any single figure.
Do the calculation
Profit Margin Calculator
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