Revenue is vanity, profit is sanity. Many e-commerce sellers focus on top-line sales while their actual margins are paper thin. Here is how to calculate true profitability.
The Full Cost Stack
- Product cost: Manufacturing or wholesale price
- Shipping to warehouse: Freight, customs, duties
- Platform fees: Amazon referral fee, FBA fees, or Shopify subscription
- Advertising: PPC cost per unit sold
- Returns: Return rate multiplied by cost per return
- VAT: Do not forget this if you are VAT registered
Target Margins
After all costs, aim for at least 20 percent net margin. Below 15 percent, one bad month of PPC or a spike in returns can wipe out your profit entirely.
Where Margin Leaks
The three biggest margin killers are uncontrolled PPC spend, high return rates, and FBA long-term storage fees. Track each weekly.
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