Online Shop Profit: A Full Worked Example for One Product and Month

Imagine a regular customer buys three coats from your shop this month. Sales look great, and that feels good. But the real question is different: out of those three coats, how much actually stayed in your pocket? Online shop profit answers that question, not revenue.

Why online shop profit matters more than sales

High sales feel good, but a good feeling is not profit. Until you look at the real numbers, you cannot tell which product actually makes you money and which one just eats your time, even if it tops the sales report.

• You advertise the product that sells the most, not the one that earns the most.
• You hand out a discount without knowing how much profit it actually cost.
• You close a strong sales month and still cannot explain why nothing is left.

None of these happen overnight, they build up slowly. That is exactly why you only notice halfway through the year, by which point you have spent months pushing the wrong product.

This is only one piece of online shop accounting; read that first if you are not yet sure what the other numbers to track are.

A full worked example: one product, one month

Take a simple example: a shop's best-selling coat, in a normal month where 40 units sold. Every figure below is made up, just to show the formula, not to copy directly for your own product.

As the table shows, there is a wide gap between total revenue and real profit. In this example, roughly a third of revenue became real profit; the rest went to goods, packaging, shipping, ads, discounts and returns. Looking at revenue alone would never have shown you that gap.

Margin or markup: which one to look at

Two terms get confused constantly: margin, which is profit divided by revenue, and markup, which is profit divided by cost. Both come from the same numbers but answer different questions.

• Margin tells you how much of every unit sold turned into profit, close to 30 percent in the example above.
• Markup tells you how much you added on top of cost, around 42 percent in that same example.
• Use markup when pricing a new product, and margin when judging how much a month of sales was actually worth.

These are just definitions, not tax or legal rules. The point is knowing which angle you are looking at your own numbers from before you make a decision based on them.

Four hidden costs that eat into profit

Four costs never show up on any invoice, yet they come straight out of profit. None of them feel like spending, which is exactly why they slip past unnoticed, month after month, without ever showing up as a line you can point to.

• Your own time: an hour spent on a low-margin order is still a cost, even when it is unpaid.
• Idle inventory: stock sitting on a shelf for months is cash that is not working for you.
• Returns and exchanges: every returned item costs you its packaging and shipping too, not just the goods.
• Repeat discounts: a small DM discount feels tiny alone but adds up fast at volume.

The second one is exactly what we cover in online shop inventory, including how a low-stock alert catches it earlier.

A weekly routine for tracking profit

You do not need to calculate profit every day. A short weekly routine is enough to avoid a surprise at the end of the month, and it keeps a bad week from getting buried inside a month that otherwise looked fine.

1. 1Pull net sales for the week.
2. 2Add up the cost of goods for what sold that week.
3. 3Add packaging, shipping and ad spend for the week.
4. 4Subtract discounts and returns from revenue.
5. 5Calculate the week's profit and compare it against the week before.

Common mistakes when calculating profit

• Counting only the purchase price, without packaging or shipping.
• Confusing profit with revenue, as if every sale were pure profit.
• Never recording DM discounts anywhere.
• Ignoring returns because there were only a couple.
• Calculating profit once a year instead of weekly.

If you want this calculated automatically, online shop accounting app covers exactly what features to look for.

ProMall calculates each product's profit automatically from the cost price you enter for that SKU, right alongside every order you record. The other rows in this table, packaging, shipping and ads, are still yours to add by hand, but at least you start from a real number instead of a guess.