Increasing revenue is great, but if your gross margin is low, growth won’t translate to real profit. Gross margin, the difference between revenue and the cost of goods sold (COGS), is a crucial metric for sustainable ecommerce profitability.

As at 2025, the average gross margin of ecommerce brands sits around 40–50%, but top-performing stores achieve 60–70% through smart pricing, operational efficiency, and strategic product management.

Working to optimize your gross margin is more than just increasing prices. It’s about reducing costs, increasing order value, managing inventory smartly, and maximizing customer lifetime value. This article explores actionable strategies with examples from real companies that have successfully improved margins.

Why Gross Margin Matters in Ecommerce

Gross margin directly impacts your bottom line. High revenue with low margins often leaves a store cash-strapped, limiting growth opportunities.

For DTC brands, increasing gross margin by 5–10% can translate into 20–30% more net profit without selling additional units. Gross margin optimization allows brands to invest in growth, marketing, and retention without over-leveraging their resources.

Simply put: a higher margin per order means more profit for every sale, even if traffic stays constant.

Strategies to Optimize Your Ecommerce Gross Margin

1. Optimize Pricing and Product Positioning

Pricing is the fastest way to improve gross margin. Customers are willing to pay more for perceived value, so focus on pricing based on product positioning rather than just costs. Here are some case studies:

• Glossier maintains high margins by positioning products as premium, with clear value storytelling that justifies pricing.

• Walmart has used a pricing system to increase margins by 12%, using real-time competitor and demand data. 

Tips to implement:

• Test tiered pricing and bundles to increase perceived value.

• Highlight product benefits that justify premium pricing.
• Use dynamic pricing tools to adjust based on demand, seasonality, or stock levels.

2. Reduce Cost of Goods Sold (COGS) Smartly

Lowering COGS is another direct way to increase gross margin. However, cost reductions shouldn’t compromise quality or customer experience. Tactics include:

• Negotiate with suppliers for better rates or bulk discounts.
• Source alternative materials or manufacturers without sacrificing product quality.
• Use automated order forecasting to prevent overproduction and waste.

Case study:

Lunaria Beauty optimized supplier contracts and fulfillment automation, resulting in a 34% margin improvement without impacting customer satisfaction.

3. Increase Average Order Value (AOV)

Higher AOV spreads fixed costs across more revenue per order, improving margin efficiency. Tactics include:

• Offer product bundles or kits.
• Recommend complementary items during checkout.
• Introduce thresholds for free shipping slightly above your current AOV.

Example:

Wayfair’s AI-powered bundling increased AOV by 32%, boosting revenue and margins simultaneously.

4. Reduce Returns and Operational Waste

Returns and fulfillment inefficiencies erode gross margin quickly. Minimizing these issues protects profit. Tips to implement include:

• Provide accurate product descriptions, sizing guides, and clear images to reduce returns.
• Automate inventory management to avoid overstock and waste.
• Optimize packaging and shipping methods for cost efficiency.

5. Leverage Customer Lifetime Value (CLV)

Gross margin isn’t just about single orders; it’s about profit per customer over time. Repeat buyers increase total margin contribution without increasing acquisition costs. Stats show that increasing retention by 5% can increase profits by up to 95%. 

Example:

Dollar Shave Club converted one-time razor purchases into recurring subscriptions, increasing lifetime margin per customer and reducing dependence on expensive ad spend. 

6. Use Data to Identify Margin Leaks

Not all products or campaigns contribute equally to margin. Use analytics to focus on high-margin items and customer segments. How to implement:

• Segment customers by profitability, not just revenue.
• Monitor campaign performance in terms of gross margin, not just sales.

Identify slow-moving SKUs that erode inventory value.

Example:

A DTC brand shifted from ROAS to POAS (Profit on Ad Spend) and redirected campaigns toward high-margin segments, increasing overall profitability by 93.78%. 

Conclusion 

Optimizing gross margin in ecommerce isn’t just about pricing; it’s about aligning product strategy, operations, and customer behavior to maximize profit per order and per customer.

Revvy helps ecommerce brands uncover where margin is leaking, identify high-value opportunities, and implement actionable strategies to optimize gross margin sustainably.
Use Revvy to optimize gross margin and scale profit intelligently, turning revenue into real, sustainable profit.