Military Addresses: A Guide to Shipping to Our Troops

As a leading global shipping platform, Easyship aims to empower brands of every size to better understand the relationship between their variable shipping costs, fixed operational costs like warehousing and storage, and overall eCommerce store profit margins.

A good net profit margin for eCommerce businesses is typically around 9-12%, with 20-23% considered high. Profit margins of less than 8% make a Shopify business susceptible to market fluctuations and changes in costs and competition.

In this practical guide, we’ll explore how shipping costs can impact your bottom line. All while providing helpful strategies to review, compare and optimize your shipping process for improved profitability. After all, your Shopify business deserves to keep more of what you make and sell online.

What Are eCommerce Profit Margins?

eCommerce profit margins are the percentage of each dollar earned by an online business that is profit after all expenses are deducted.

In other words, it is the amount of money left over after subtracting the cost of goods sold (COGS), operating expenses, and other costs from the total revenue generated by the web store.

Understanding the profit margins of your Shopify store is crucial for you to gauge the financial health of your business, identify areas for improvement, and make informed decisions to optimize your business operations.

Profit margins are a key indicator of an eCommerce business’s efficiency and profitability. By regularly monitoring these metrics, you can ensure they are on the right track to achieving sustainable growth.

Whether it’s the gross profit margin, which focuses on the direct costs of producing goods, or the net profit margin, which accounts for all operating expenses, taxes, and other costs, these figures provide a comprehensive view of your business’s financial performance.

A Simple Guide To Cutting Shopify Shipping Costs

Aside from your inventory, shipping expenses are typically one of the largest costs for eCommerce stores. In 2024, the average cost of logistics accounted for 12.7% of sales for retail businesses. This number increases for high volume products like clothing and fashion, where average shipping costs can be much higher, often up to 16% of the transaction value.

A good profit margin in eCommerce is crucial for business sustainability. While a 20-23% net profit margin is considered very good, the ideal gross profit margin for many eCommerce businesses is around 45%. Various factors, such as product category and market dynamics, influence these profit margin figures.

If not managed effectively, shipping costs can quickly eat into your profit margins, affecting your overall business health, cash flow and ability to reinvest in new products, website improvements and marketing efforts. Shipping costs can typically be grouped into four buckets and include:

To truly understand the impact of shipping on your profitability, it’s essential to calculate your net profit margin, once these costs are accounted for.

This metric will give you a clearer picture of how much you’re actually earning for your sales (and hard work), delivering an overall snapshot of your business health.

How to Calculate Your Shipping Costs

To calculate the impact of shipping on your ecommerce profit margins, it’s helpful to understand these key formulas for online sales, including gross profits, net profits, gross margin, net margin, and other variable costs.

Understanding both gross profits and net profits is essential for assessing the overall profitability and financial health of an eCommerce business.

To make things simple, you could also benefit from a shipping analytics tool like Easyship, which automatically provides a snapshot of your shipping operations.

To achieve more profitable growth, regularly review these metrics and identify opportunities to reduce shipping costs, adjust pricing, or modify your overall shipping strategy.

By analyzing these factors, you can gain a comprehensive understanding of how shipping impacts your eCommerce profit margins and make data-driven decisions to optimize your operations.

The Hidden Costs of Free Shipping On Shopify

While it is commonplace for eCommerce businesses to offer “free shipping” in order to increase sales, grow market share and meet customer expectations, these types of aggressive pricing strategies can come at a considerable cost to your business.

Understanding what constitutes a good retail profit margin is crucial for grasping overall profitability and developing advanced strategies to enhance profit margins. Absorbing all shipping costs or operating with a low recovery rate (where you charge your customers for shipping) can significantly reduce your gross profit margins, making it essential to carefully evaluate the financial impact of such offers.

Unsurprisingly, free shipping isn’t really free—someone has to pay the fee—which is where Easyship can help by transparently passing delivery costs onto your customers.

Balancing free shipping and healthy profit margins:

• Increase your pricing: To offer free shipping, you can raise prices to cover and include the shipping costs. It's important to be mindful that this can affect your competitiveness in the market. It's often difficult to accurately calculate how much to charge (without undercharging some customers and overcharging others).
• Add a minimum order value: Defining a threshold to unlock free shipping is a more positive strategy for increasing average order value and profitability. However, it may also deter some customers from purchasing if the minimum order is too high. Conduct some A/B testing to work out the sweet spot between volume, AOV and net profit margins.
• Cut your margin (not recommended): If you absorb 100% of the shipping cost to offer free shipping, your profit margins will inevitably shrink. Bad profit margins are bad for business. Carefully calculate the expected upside here in terms of sales to avoid an unsustainable average gross profit margin.
• Offer transparent calculated shipping rates at checkout: The fourth (and often best!) option for most retailers looking to protect their profits. Calculated shipping rates allow you to showcase a range of delivery options at checkout. This allows your online buyers to choose the best option for their needs. Modern customers know shipping isn't free, so upfront communication and the option of cheaper or faster delivery often results in increased sales, lower cart abandonment, and a better average profit margin.

To determine if free shipping is viable for your eCommerce store, you'll need to analyse your average order value, total customer acquisition cost, and expected lifetime value.

This is to determine if the increase in volume of orders is more profitable than the increased costs of offering these services for free.

Raising prices can work from time to time, but be sure to closely monitor sales volume and overall revenue growth to ensure you're not limiting your profit equation or restricting growth. For example, a specific sales channel may have more price sensitivity, like social selling on TikTok Shop or online marketplaces like eBay.

Alternatively, take a closer look at providing more choices for consumers with instant rates at checkout through a plugin like Easyship. You'll also benefit from discounted shipping rates and more than 550+ global courier services, which is a huge win-win.

Increase Conversions with Shipping Rates At Checkout

Adding real-time rates to your store's checkout lets you take control of your shipping costs by passing on your actual carrier shipping fees directly to your customers.

Better still, by providing this service in a transparent and upfront way directly inside your checkout flow, you can actually increase conversions and reduce cart abandonment through the power of choice.

This is particularly true for international orders where shipping costs are higher and may incur country specific taxes and duties.

Leverage the power of choice with recommended delivery options:

• Cheapest shipping rate: The lowest cost shipping option for their specific delivery address, updated in real-time and including all relevant fees and charges to show the total landed cost.
• Fastest delivery option: The fastest possible express shipping alternative, allowing the customer to get their new items in the shortest possible timeframe, as soon as same or next day delivery.
• Best value courier option: The best value shipping determined by our intelligent courier selection software which balances the total cost with the speed of delivery, the best option for fast, affordable delivery.

Your store can leverage any combination of shipping carriers within Easyship’s leading global courier network to power live rate comparisons and real-time shipping quotes.

Your customers will benefit by automatically receiving the top three recommended options including the cheapest, fastest or best value courier services for their specific address. While your business will benefit from improved net profit margins.

Tips To Lower Fulfilment Costs For Greater Profitability

Maintaining a healthy average net profit margin is crucial, even when offering free or passing on discounted shipping rates to increase conversions. Here's some more great tips for streamlining your operational costs and processes.

Multi-Carrier Shipping Tools

Easyship offers a suite of powerful shipping tools designed to optimize your fulfillment processes and boost profit margins.

With one of the world's largest courier service networks and pre-negotiated discounted shipping rates, you can instantly compare prices from multiple carriers to select the most cost-effective option for each order.

Saving you money on every shipment which goes directly to your bottom line.

Shipping Automation

Reducing fulfillment costs can significantly improve your operating profit margin, contributing to overall business profitability.

Easyship’s advanced pick and pack process, smart shipping dashboard, and 60+ technology integrations including live order updates in Shopify, Squarespace, eBay and Amazon, ensure a seamless shipping workflow from order received to order shipped.

You can also leverage our simple shipping automation rules to further accelerate order handling, courier selection and operational efficiency to save on fulfilment costs.

Branded Shipment Tracking

Beyond the initial shipping label purchase and order fulfillment, Easyship also delivers best-in-class branded shipment tracking for every order, no matter which carrier you select.

This greatly benefits your customer support function by helping to reduce inbound delivery related “where is my order” (WISMO) queries that waste time and increase support costs.

Better tracking also enhances your overall customer experience and creates another positive touchpoint for your brand.

How Returns Impact Shipping Costs

While sales returns are an inevitable part of eCommerce, they often spike at exactly the wrong moment during sales events and peak season, where gross profit margins are already thin—leading to even lower margins as you're hit with return label costs.

This is why having an effective returns policy and process is critical, saving your time handling returned orders and saving your money on shipping costs.

1. Clear shipping and returns policies: A clear, fair return policy can reduce the likelihood of returns. You can get a free shipping and returns policy here using our shipping policy generator, giving you clear rules and guidelines to fall back on when you have a dispute or change of mind.
2. Strategically charge for return shipping fees: The era of free returns is quickly coming to an end, with many large retailers already acting to remove or restrict these policies to recoup these unwelcome operating costs. Decide whether to charge customers for return shipping, or offer free returns for online shopping (but only if it's likely to lead to more sales).
3. Efficient return processing: It's important to review your returns process, implement systems to streamline manual handling and transportation costs. Also consider the impact on net sales and how you can potentially offer a store credit or discount to encourage another sale.

Monitor your return rate closely, as high return rates can severely impact your gross margins, inbound shipping fees and business operations—directly impacting your overall ecommerce profitability.

A Deeper Dive On Calculating Shopify Profit Margins

Profit margins are a critical metric for any eCommerce business, as they reveal the percentage of revenue that remains after all expenses are deducted.

These margins are essential for understanding the financial health and sustainability of an online store. In the world of eCommerce, profit margins can be broadly categorized into two types: gross profit margin and net profit margin.

A good profit margin in eCommerce is often benchmarked with a 20-23% net profit margin being considered very good, while the ideal gross profit margin is around 45%. Various factors, such as product category and market dynamics, influence these profit margin figures.

How To Work Out eCommerce Profit Margins

Calculating eCommerce profit margins is essential for assessing the financial performance of an online store. Here are the formulas for calculating gross profit margin and net profit margin:

Gross Profit Margin: This metric is calculated by subtracting the cost of goods sold (COGS) from total revenue and then dividing the result by total revenue.

Gross Profit Margin = (Revenue − COGS / Revenue​) × 100

Net Profit Margin: This metric takes into account all operating expenses, interest, taxes, and other costs. It is calculated by subtracting COGS, operating expenses, interest, and taxes from total revenue, and then dividing the result by total revenue.

Net Profit Margin = (Revenue − COGS − Operating and Other Expenses − Interest − Taxes / Revenue​) × 100

Understanding Your Stores Profit Margins & Growth Levers

eCommerce profit margins represent the percentage of each dollar earned by an online business after deducting various expenses. Gross profit margin measures the profit earned after subtracting the cost of goods sold (COGS) from revenue.

This metric provides insight into how efficiently a business is producing and selling its products. On the other hand, net profit margin is the ultimate measure of profitability, accounting for all operating expenses, interest, taxes, and other costs. It shows the actual profit a business makes from its total revenue.

By regularly calculating these profit margins, eCommerce businesses can gain valuable insights into their financial health and identify areas for improvement. Monitoring these metrics helps in making strategic decisions to enhance profitability and sustain growth.

Balancing eCommerce Sales & Customer Expectations 

Modern consumers expect fast, cheap (or free) shipping. However, meeting these expectations while maintaining profitability can be challenging. In terms of four key takeaways, consider:

1. Discounted shipping rates: Ensure your delivery fees are calculated using the lowest shipping rates available in the market. A multi-carrier shipping tool like Easyship can help your business compare discounted shipping quotes and always get the best rate.
2. Offering tiered shipping options: Providing free shipping offers or bundle deals for orders above a certain threshold (e.g. $100) can help increase Average Order Value (AOV) and lead to higher margin. Be sure to offer—and charge for—express shipping options.
3. Communicate shipping costs clearly: Be transparent about shipping costs early in the checkout process to reduce cart abandonment by leveraging integrated delivery options at checkout. Easyship's rates at checkout plugin gives customers the power to choose their preferred shipping method.
4. Highlight your value proposition : If you can’t offer free shipping, ensure you highlight the discounted shipping rates and other key aspects of your service, such as superior quality, uniqueness of the brand, or other distinctive characteristics that enhance the perceived value.

Remember, your cart abandonment rate can provide valuable insights into how your shipping options are affecting customer behaviour.

By staying informed and proactive about your shipping strategies, you can turn this necessary expense into a competitive advantage for your eCommerce business.

To help you navigate the complexities of eCommerce shipping, consider using a comprehensive all-in-one shipping software solution like Easyship.

With features like discounted live rates, courier comparison, labels and pre-paid returns, and seamless integration with major carriers like USPS, FedEx and UPS, Easyship can help you streamline your shipping processes and boost your profit margins.

Ready to simplify and save on shipping? Easyship is here to help.

Easyship was built to simplify shipping for eCommerce sellers of every size. If you’re looking for ways to save on shipping costs, compare rates, automate fulfillment, or grow internationally—our free shipping tools and smart dashboard can save you hours daily. Our most popular App features:

• Discounted Shipping Rates: Get instant access to the largest selection of pre-negotiated volume discounts on shipping labels (up to 91% off retail rates).
• Multi-Carrier Comparison: Effortlessly compare 550+ global courier services to find the best option with our intelligent courier selection algorithm.
• Simple Set-Up & Integration: Connect your store and sales channels to Easyship in minutes to automatically sync orders and manage all shipments in one dashboard.
• Instant Rates At Checkout: Increase conversions by showcasing the cheapest, fastest and best value shipping rates live at checkout.
• Automatic Tax & Duties: Calculate, pre-pay, or pass on all tax and duty obligations for international orders, including generating all relevant customs paperwork.
• Shipping Automation Rules: Streamline shipping workflows, bulk print labels and reduce manual pick and pack errors with simple automation rules.
• Branded Tracking & Returns: Deliver a superior customer experience from checkout to delivery with branded tracking updates, delivery status, and pre-paid return labels.
• Shipping Insurance: Protect your brand and reputation from parcel theft, loss, or damage with affordable insurance options for domestic and international shipments.

More free shipping tools:

• Shipping Rate Calculator: Compare and calculate the cheapest way to ship anything to anywhere with our shipping cost calculator for international and domestic.
• Tax & Duties Calculator: Create an estimate of your customs duties and import taxes for every country and retail category.
• Country Import Rules: Understand the individual import rules, requirements, and restrictions for every country with our helpful guides.
• HS Code Lookup Tool: Search for the correct HS/HST Code for international orders with our universal HS Code Lookup Tool.
• Shipping Policy Generator: A clear and enticing shipping policy is a sales tool for stores, setting clear expectations and building trust with prospective customers.

Join our community of eCommerce sellers and get started with Easyship for free today.

FAQs About eCommerce Profit Margin Benchmarks

What is the average Shopify store profit margin?

The average Shopify store generates around $5,983 in monthly revenue over the course of a year. That's about $71,796 per year. Generally, 40-45% of all revenue is made in the final quarter with peak season and holiday shopping accounting for a large seasonal boost between October and December.

If we apply the low, average, and high profit margin thresholds of 5-8%, 9-12% and 20-23% respectively. Average Shopify stores can earn between $300-$478 for lower margin stores. $538-717 for benchmark stores and up to $1196-1376 for higher margin Shopify businesses.

How much does my Shopify store need to make to replace my 9-5 job?

Great question! Depending on your lifestyle and living expenses, you can make the switch earlier than you think.

Again, applying the standard low, average, and higher eCommerce profit margins to various gross revenue figures shows us what you need to sell online:

How Can I Save Money On Shipping by Integrating Easyship with My eCommerce Store?

To integrate Easyship with your store, navigate to the Shopify App Store marketplace and search for Easyship. Follow the installation instructions provided in the app details. It's super easy and is done in a couple of clicks.

Once connected, you can access a variety of shipping options and discounted rates from over 550 couriers directly within a single dashboard, streamlining your shipping process and saving you up to 91%.

What Benefits Does Easyship Provide for eCommerce Businesses?

Easyship offers numerous advantages for eCommerce businesses, including access to pre-negotiated shipping rates that can save you up to 91% on shipping costs.

The platform also provides automated label creation, real-time tracking, and a smart shipping dashboard that allows you to compare rates across multiple carriers, ensuring you choose the best option for each shipment. Additionally, Easyship calculates landed costs for international shipments, helping you avoid unexpected fees.

How Can I Track My Shipments with Easyship?

Easyship provides branded shipment tracking for all orders shipped through its platform. Customers receive real-time updates on their shipments directly from your store, reducing inquiries about order status and enhancing the overall customer experience. The tracking information is easily accessible through your dashboard, allowing you to monitor all shipments in one place.