Product Margin

Definition

Product Margin refers to the difference between the price a product is sold for and the total cost required to sell it. It represents how much profit a seller earns from each product after costs are deducted.

Explanation

In dropshipping, product margin is a key factor in determining whether a product is profitable. Since dropshippers do not hold inventory, the main costs usually include:

• Product cost from the supplier
• Shipping and fulfillment fees
• Advertising costs (such as social media ads)
• Platform or payment processing fees

A healthy product margin allows dropshippers to cover these expenses while still making a profit. If the margin is too small, advertising or transaction fees can quickly eliminate profits.

For this reason, many dropshippers look for products with sufficient markup potential when selecting items to sell.

Example

A dropshipper sells a portable lamp in their online store.

• Selling price: $35
• Supplier product cost: $12
• Shipping cost: $5

Total cost: $17

Product margin per unit:
$35 − $17 = $18

This margin must still cover advertising and other operating costs before becoming net profit.

Key Takeaway

In dropshipping, product margin determines whether a product can remain profitable after accounting for supplier costs, shipping, and marketing expenses.