What is gross margin?
Gross margin is the difference between a store's revenue and the cost of the goods it sold, expressed as a percentage of revenue. It measures how much of each sale the store keeps after accounting for what the inventory cost.
Why Gross Margin Matters for Resale Stores
Gross margin tells you how efficiently your inventory model is converting sales into profit. Two stores with identical revenue can have very different gross margins and very different financial health.
For stores running both consignment and store-owned inventory models, gross margin by model reveals which acquisition method is actually more profitable after costs. A buy-outright model often has higher gross margin per item sold, but also higher inventory risk. A consignment model typically has lower margin per item but requires no up-front capital. Neither is inherently better: the right choice depends on turnover ratio, sell-through rate, and the store's overall financial picture.
Gross margin also informs pricing decisions. If margin on a particular category is consistently thin, it could be a signal to revisit either the store’s pricing or the intake costs.
How to Calculate Gross Margin
The formula is:
Gross Margin = (Revenue − Cost of Goods Sold) ÷ Revenue × 100
What counts as "cost of goods sold" depends on how the store acquired its inventory.
In a buy-outright store: The cost of goods sold is what the store paid the seller for the item.
Example: A store buys a jacket for $20 and sells it for $50. ($50 − $20) ÷ $50 × 100 = 60% gross margin
In a consignment store: The store has no acquisition cost until after the sale. Cost of goods sold is the consignor's share of the sale.
Example: A jacket sells for $50 on a 60/40 split. The consignor receives $30; the store keeps $20. ($50 − $30) ÷ $50 × 100 = 40% gross margin
In a hybrid resale store: Gross margin should be calculated separately for consigned and store-owned inventory. Blending the two produces an inaccurate number.
FAQs
What's a typical gross margin for a resale store?
Gross margin varies widely by inventory-sourcing model and category. Buy-outright stores commonly target gross margins in the range of 40–60%. Consignment stores typically see margins in the 35–50% range depending on their split structure.
Is gross margin the same as profit?
No. Gross margin only accounts for the cost of goods sold. It doesn't include operating expenses like rent, payroll, and utilities. Net profit—what's left after all expenses—is a separate and lower figure.
How does gross margin relate to turnover ratio?
The two metrics work together. High gross margin with low turnover means items are priced well but moving slowly. High turnover with low gross margin means items are moving fast but may be underpriced. The healthiest stores optimize for both.
Should I track gross margin by category?
Yes, if you can. Gross margin varies by item type, and category-level data helps identify where the store is strongest and where pricing or intake needs adjustment.