Net margin
Net margin is the percentage of each dinar collected that stays with you after subtracting all costs: product, shipping, packaging, returns, advertising, subscriptions, salaries, and fees. Calculate it by dividing net profit by revenue from delivered orders. It's the only number that says whether the project builds or burns capital.
Also calledNet profitNet profit marginBottom line
The formula
Net margin = (Revenue from delivered orders − All costs) ÷ Revenue from delivered orders × 100
- All costs: product cost + shipping and packaging + rejected package cost + ad spend + subscriptions and tools + salaries and commissions + collection fees.
- Revenue from delivered orders: money actually collected, not confirmed order value.
- Standard period is one month, because fixed costs are monthly.
Worked example
A full month of operations for an Algerian store
- 1Out of 430 confirmed orders, 300 delivered and 130 refused.
- 2Revenue collected: 300 × 3,900 = 1,170,000 DZD.
- 3Product costs: 300 × 1,300 = 390,000 DZD.
- 4Shipping and packaging on delivered: 300 × 600 = 180,000 DZD.
- 5Shipping rejected packages: 130 × 300 = 39,000 DZD.
- 6Ad spend 285,000 DZD, subscriptions 15,000 DZD, confirmation team commissions 60,000 DZD.
- 7Total costs: 969,000 DZD, net profit: 1,170,000 − 969,000 = 201,000 DZD.
- 8Net margin: 201,000 ÷ 1,170,000 = 17.2%.
Takeaway: Margin of 17.2% is tight: raising ad spend by 57,000 DZD without extra orders erases 28% of the month's profit.
What it means in practice
Net margin is calculated monthly, not per order, because fixed costs like subscriptions and salaries don't belong to any single order. If you want a per-order number, divide fixed costs by delivered orders in the same month.
Positive net margin doesn't mean positive cash. In COD you pay for stock and ads today and collect from the carrier weeks later, so you may be profitable on paper and short of cash to fund the next order.
The two biggest margin killers in the region are ad spend and rejected package cost. Dropping rejection rate a few points shows up on margin faster than any advertising win.
Separate months where you bought big inventory. Recording the full purchase cost in one month gives a false negative margin—the right way is subtracting only the cost of units sold.
Common mistakes
- Calculating revenue from confirmed orders instead of delivered, giving a net margin that doesn't exist in the bank account.
- Forgetting collection fees the carrier deducts from the amount collected.
- Not counting the owner's salary, making the store look profitable when it's actually buying the owner a low-wage job.
- Measuring net margin for one week while stock was bought once for three months.
Questions and answers
What's a reasonable net margin for a COD store?
No fixed rule. The right comparison is against your own past months and against alternatives for your capital. What matters is the margin covers next order and ads without outside funding, and it's stable—not dependent on one exceptional month.
How do I raise net margin fast?
Three levers in order of speed: lift delivery rate with better confirmation calls and a better carrier, then lift average order value with bundles or complements, then lower order cost with new creative. The last is slowest and most volatile.
Is ad spend subtracted from gross or net margin?
Ad spend doesn't go into gross margin. It's subtracted at the next level with subscriptions, salaries, and fees to reach net margin. This split is intentional: gross margin says if the product works, net margin says if the whole operation works.
Why is my net margin positive but my bank empty?
Because accounting profit and cash are different things. Capital is tied up in stored goods, in packages in transit, and in amounts owed by the carrier not yet deposited. Track cash collection cycle alongside margin, not margin alone.
Sources
- 1.COD profit calculator · SymplysisAI