Your operating profit margin shows how much of your revenue remains after you subtract operating expenses. Retailers can use this percentage to understand business profitability, evaluate costs, and identify opportunities to improve margins.
Use the table of contents below to navigate to specific sections of this article:
- What Is an Operating Profit Margin
- Why Does Operating Profit Margin Matter
- Operating Margin Benchmarks for Retailers
- Compare Profit on a Traditional Product and Dropship Product
- View Profit Margins on Dropshipping Products
- FAQs
What Is an Operating Profit Margin?
An operating profit margin measures the percentage of revenue remaining after operating expenses are deducted.
Operating expenses can include indirect costs associated with running your business, such as:
- Labor
- Shipping and fulfillment
- Equipment
- Software
- Marketing
- Rent and storage
How Do You Calculate Operating Profit Margin?
Use this formula:
Operating Profit Margin = ((Revenue − Operating Expenses) ÷ Total Revenue) × 100
For example, suppose your business generates $250,000 in revenue and has $175,000 in operating expenses.
- Subtract operating expenses from revenue: $250,000 − $175,000 = $75,000.
- Divide the result by total revenue: $75,000 ÷ $250,000 = 0.30.
- Multiply by 100 to convert the result to a percentage: 0.30 × 100 = 30%.
Your operating profit margin in this example is 30%.
Why Does Operating Profit Margin Matter?
Understanding your operating profit margin can help you evaluate your business’s financial performance and make informed decisions about costs.
You can use your margin to:
- Understand profitability: See how much revenue remains after operating expenses.
- Monitor performance: Compare your margin with your business’s targets over time.
- Identify cost-saving opportunities: If your margin is lower than expected, review operating expenses to identify costs you may be able to reduce.
- Evaluate business strategies: Consider how changes to inventory, fulfillment, and other operating processes may affect your costs and profitability.
Operating Margin Benchmarks for Retailers
It’s important for retailers to familiarize themselves with margin benchmarks for their industry so they know where their own margins fall. This allows retailers to know if they’re on track, excelling, or if they need to improve.
Below are our recommended benchmarks for retailers’ operating margins.
| Average | Good | Excellent |
| 20% | 25% | 30% |
Retailers can improve their operating profit margin by increasing their gross profit, and also by reducing some of their operational costs. For example, some retailers might consider dropshipping. That’s when a retailer purchases products from a wholesaler but the wholesaler processes and ships customer orders.
Here, retailers eliminate the labor costs associated with the intake and fulfillment of their dropshipping products, as well as the cost of shipping labels and supplies. Retailers also save on the costs they would’ve paid for storing that inventory.
Compare Profit on a Traditional Product and Dropship Product
When setting up a dropshipping product in CommentSold, often the first thing retailers notice is that their per-product profit seems less than with a non-dropship product.
While on the surface this might appear true, retailers should subtract the following from that profit:
- Cost of shipping the product to their warehouse,
- Labor costs for intake and fulfillment,
- Storage costs for keeping the product at your warehouse until it sells, and
- Cost of shipping and shipping supplies.
With dropshipping, the cost for the wholesaler to store, process, and ship the product is already factored into the price a retailer pays for the product meaning the profit the retailer makes is just that–profit.
Take a look at the image below. Here we compare the same product sold at the same sales price but sold as a traditional product versus a dropshipping product.
Once a retailer factors in the operational costs associated with the product, the profit turns out to be less than that of the dropshipping product’s profit.
And since selling a dropshipping product allowed a retailer to reduce part of their operating expenses while bringing in more profit, a retailer is able to improve their overall operating margin.
View Profit Margins on Dropshipping Products
Dropshipping products come with a recommended Retail Price set by the wholesaler, but retailers can adjust this price to better fit their sales strategy.
- Select Products in the side menu of your CommentSold dashboard.
- Locate and select the product of the dropshipping product you wish to update.
- Select Edit Inventory at the top of the product record.
- Update the Retail Price and Sale Price fields, if needed.
- The Retail Price field populates a recommended minimum retail price, but you can update this price to adjust your margin.
- The Margin field automatically updates to reflect any margin changes based on retail price adjustments.
FAQs
What does operating profit margin tell me?
Operating profit margin tells you what percentage of your revenue remains after operating expenses are deducted. It can help you assess profitability and identify areas where costs may need attention.
What is the formula for operating profit margin?
Operating profit margin is calculated by subtracting operating expenses from revenue, dividing the result by total revenue, and multiplying by 100.
Formula: ((Revenue − Operating Expenses) ÷ Total Revenue) × 100.
How can dropshipping affect operating profit margin?
Dropshipping may reduce costs associated with receiving, storing, and fulfilling inventory because the wholesaler handles those activities. If those savings outweigh any differences in product cost, dropshipping may improve your operating profit margin.
Can I change the retail price of a dropshipping product in CommentSold?
Yes. You can edit a dropshipping product’s Retail Price and Sale Price from Products > select the product > Edit Inventory. The Margin field automatically updates when you adjust the retail price.
Are the operating margin benchmarks guaranteed targets?
No. The 20%, 25%, and 30% figures are CommentSold’s recommended benchmarks in this article. They should be treated as reference points, since appropriate margins can vary by business and operating model.
Learn More
- View Your Main Reports Overview. Learn more about the data points included in this overview such as payments, returns, fulfillment, revenue, and more.
- View and Understand CommentSold Analytics. Learn how to access and read analytics panels displaying revenue, order, sales channels, and labor data.