Which products actually make you money? Your margin report knows

The products that earn you the most are rarely the ones that sell the most units. Gross profit is revenue minus what the goods cost you, so the answer turns on which cost you use: what your supplier charges today, or what you actually paid for the units that sold. A margin report built on the second is the one to plan from.

Sort your products by units sold and you get the list every merchant knows by heart. Sort them by gross profit and the list changes, sometimes a lot. The product that sells ten a day on a thin markup slides down the page, and a mid-catalog product that sells four a week at a high margin turns out to be earning more. Most stores plan promotions, reorders and shelf space from the first list, and would do better planning from the second.

Which cost to use

Every margin number is revenue minus cost, and the cost you pick changes the answer:

• Current cost - what your supplier charges today, which is the cost on the product in Shopify. It is quick and always available, and fine for a first look, but it prices last quarter’s sales at this quarter’s cost.
• What you paid - the receipt costs of the units you sold, including freight and duties, consumed in the order you received them. This is the number your accountant would use, and the one that catches a margin shrinking as a supplier raises prices or shipping gets more expensive.

The difference between the two tells you something. If a product’s margin looks fine at current cost but worse at receipt cost, your recent inventory cost more than the number you are pricing from. The current-cost view will catch up a reorder later, when it is harder to fix.

Read profit dollars first, percentages second

A 60% margin on a product that sold twelve units matters less than a 22% margin on one that sold nine hundred. Rank by gross profit dollars and you find the products that fund the business, which is usually a short list. Most catalogs follow the 80/20 curve: a small share of products brings in most of the profit. Knowing where that line falls in your catalog tells you which SKUs deserve deeper stock, faster reorders and your best supplier negotiations.

Then look at the other end. Every catalog has products selling below their margin threshold, or below cost, usually by accident: a price set before a cost increase, or a discount that never ended. A margin report should show these as their own list, worst first, so you can fix the prices.

GMROI: profit against the stock you hold

Take two products, both at 40% margin. One sells through its stock every six weeks and the other takes eight months. On margin they look the same, but the second one ties up far more cash.

GMROI (gross margin return on inventory investment) divides gross profit by the average value of inventory you held to earn it, which gives you profit per dollar of stock on the shelf. Pair it with sell-through (units sold against units you had available) and slow, expensive products stop hiding behind a good percentage. A modest-margin product that turns quickly can beat a high-margin product that sits, and GMROI shows you which is which.

When the report should show no margin

The common failure in margin reporting is an estimate that looks precise. Some units have no cost on record, some costs are in a different currency, and some sales are from before you started tracking. A careless report fills those gaps with zero cost and shows a margin that is better than the truth. The right approach is to show no margin for what cannot be answered, and to count how much is not covered so you know. An overstated margin steers your attention away from the products that need it.

Where to see yours

Stockroom’s margin report does all of this for your store: products ranked by gross profit on either cost basis (receipt costs by default, with FIFO or weighted average to match your accounting), a margin-band overview, the below-threshold list, profit contribution with the 80/20 line, GMROI and sell-through per product, and a margin trend over time, with CSV export and scheduled email delivery. It is part of the free app, and it reads from the purchasing and receiving you are already doing.

The first look is usually the most useful one. Somewhere in your catalog there is probably a best seller that is not making money and a slow seller that is.