How to Track Real Profit in E-commerce (Not Just Revenue)

Revenue looks exciting. But after platform fees, transaction costs, refunds, and COGS, what's left? Here's how to calculate what you actually keep.

There's a dangerous moment in every e-commerce founder's journey. It's when you look at your Shopify dashboard, see the revenue number, and think "I'm doing great."

Revenue is not profit. It's not even close.

Between the sale and the money hitting your pocket, there are layers of costs that most founders don't fully account for. Understanding these layers—and tracking them properly—is the difference between building a sustainable business and running a very busy charity.

The Layers Between Revenue and Profit

Let's break down what actually happens to a £100 sale in a typical e-commerce business.

Layer 1: Payment Processing Fees

Before you see a penny, the payment processor takes their cut. Stripe charges around 1.4% + 20p for UK cards, more for international. PayPal is typically 2.9% + 30p.

On a £100 sale through Stripe: £1.60 gone.

Layer 2: Platform Fees

Shopify charges a monthly subscription plus transaction fees (unless you use Shopify Payments). Etsy takes listing fees plus 6.5% transaction fees. Amazon takes 8-15% depending on category.

Let's say you're on Shopify with a £79/month plan and moderate sales: allocate roughly 2-3% per transaction.

Layer 3: Cost of Goods Sold (COGS)

This is the big one. What did the product actually cost you? Include:

• Product cost or manufacturing
• Packaging materials
• Shipping to you (if applicable)
• Import duties

For many e-commerce businesses, COGS is 30-50% of the sale price.

Layer 4: Shipping to Customer

Even if you charge for shipping, you often don't cover the full cost. And if you offer free shipping (as most successful stores do), this comes directly out of your margin.

Typical shipping cost: 5-15% of order value.

Layer 5: Returns and Refunds

Industry average return rates are 20-30% for fashion, 5-15% for other categories. When something comes back, you lose the shipping both ways, potential restocking costs, and sometimes the product itself.

Budget for 2-5% of revenue lost to returns.

Layer 6: Marketing and Customer Acquisition

How did that customer find you? Facebook ads, Google ads, influencer fees, affiliate commissions—customer acquisition isn't free.

Healthy e-commerce businesses spend 15-30% of revenue on marketing.

The Real Math

Let's add it up for our £100 sale:

• Revenue: £100.00
• Payment processing (1.6%): -£1.60
• Platform fees (2.5%): -£2.50
• COGS (40%): -£40.00
• Shipping (10%): -£10.00
• Returns allowance (3%): -£3.00
• Marketing (20%): -£20.00

What's left: £22.40

That's a 22.4% profit margin before you've paid yourself, your team, your software subscriptions, or any other operating expenses.

This is why revenue is vanity. A £500,000/year revenue business with these margins makes £112,000 gross profit—which might only be £50-70,000 after operating expenses. Still good, but a very different picture than "half a million pound business" suggests.

How to Track This Properly

1. Set Up Proper Cost Categories

Your accounting software should have clear categories for each cost layer. Don't lump everything into "expenses." You need to see:

• Cost of goods sold
• Payment processing fees
• Platform/marketplace fees
• Shipping costs
• Marketing and advertising
• Operating expenses

2. Track at the Product Level

Not all products are created equal. Some might have 40% margins, others 10%. If you don't know which is which, you might be pushing your worst products hardest.

Calculate the true margin for each product or product category. This often reveals surprises—the "best seller" might actually be your least profitable item.

3. Include All Costs in COGS

COGS isn't just the wholesale price. Include:

• The product itself
• Inbound shipping and duties
• Packaging (boxes, tape, tissue paper, inserts)
• Labels and printing

Many founders understate COGS by 5-10% because they forget these "small" costs. On high volume, that adds up.

4. Allocate Marketing to Sales

If you spend £2,000 on Facebook ads and make 100 sales, your customer acquisition cost is £20 per order. That needs to factor into your profitability calculation.

Track your blended CAC (total marketing spend ÷ total new customers) monthly.

5. Build a Simple Profit Dashboard

You need a place where you can see, at a glance:

• Gross revenue
• Net revenue (after returns and refunds)
• Gross profit (after COGS)
• Contribution margin (after variable costs like shipping and payment fees)
• Net profit (after all operating expenses)

Review this weekly or monthly. Trends matter more than individual numbers.

Warning Signs to Watch

Gross margin below 50%: You'll struggle to cover operating expenses and marketing. Either raise prices or reduce COGS.

CAC higher than customer lifetime value: You're paying more to acquire customers than they're worth. Fix your retention or reduce acquisition costs.

Return rate climbing: Could indicate product quality issues, misleading product descriptions, or sizing problems. Investigate before it kills your margins.

Platform fees creeping up: Marketplaces tend to increase fees over time. Monitor this and diversify your sales channels.

A Framework for Decisions

Once you're tracking real profit, you can make better decisions:

Should I offer free shipping? Calculate the impact on your margins. Maybe free shipping over £50 makes sense, but not on all orders.

Should I run this promotion? A 20% discount might eliminate your entire margin. Know the math before you commit.

Should I expand to Amazon? Their fees are significant. Model out whether the volume increase justifies the margin decrease.

Should I increase prices? A 10% price increase might reduce volume by 5% but increase profit by 30%. Do the math.

The Bottom Line

Revenue is a vanity metric. The founders who build sustainable e-commerce businesses are obsessed with profit—real profit, after all the hidden costs are accounted for.

Start tracking your true margins today. You might be surprised—for better or worse—at what you find.