E-commerce – Finance
The three numbers every UK online seller should check each month
Your Shopify or Amazon dashboard shows revenue, not profit. These three figures – checked every month – show whether the shop is actually making money, and a store can look busy on all of them and still be quietly losing money.
It is easy to watch the sales total climb and assume the business is healthy. A store can look busy across every metric on the dashboard and still be quietly losing money – three numbers, checked monthly, are what actually tell you the truth.
At a glance
| Number | What it actually tells you | Where sellers usually go wrong |
|---|---|---|
| Contribution margin per channel | Whether a sale is profitable once you strip out product cost, platform fees, and ad spend | Judging profitability from revenue or ROAS alone |
| True net profit after all fees | Real profit once payment processing, marketplace commission, refunds, and shipping shortfalls are all deducted | Only looking at the “payout” figure a platform shows you |
| Cash tied up in stock | How much working capital is locked in inventory rather than available to spend | Reordering bestsellers on gut feel without checking stock turnover |
Why revenue is not profit
A healthy-looking dashboard and a healthy business are two different things. Revenue is just the top line – it says nothing about product cost, platform fees, advertising spend, refunds, or how much cash is sitting in unsold stock.
This is the pattern we see constantly in e-commerce and retail businesses: sales climb, order volume climbs, the Shopify or Amazon dashboard looks green across the board – and the owner still cannot explain why there is less cash in the bank than there was three months ago. Growth does not cause that problem. It just makes an existing blind spot bigger. The dashboard your platform gives you was built to show activity, not profitability, and those are not the same thing once fees, ads and stock enter the picture.
Three numbers close that gap. None of them are complicated to calculate. Most sellers simply are not looking at them monthly, so problems that were fixable in March get discovered at year-end instead.
What a sale is actually worth per channel
The first number
Contribution margin per channel
What is left from a sale on a specific platform – Shopify, Amazon, Etsy, TikTok Shop, and so on – once you deduct the direct cost of that sale: product cost, platform commission, payment processing, and the advertising spend that generated it.
Not all revenue is equal. A £40 order through paid Instagram ads and a £40 order from an organic Google search can have completely different profitability once you account for what it cost to generate each one. Sellers who only track overall revenue often keep pouring budget into a channel that looks busy but is barely breaking even, while a quieter, higher-margin channel gets starved of attention.
The profit your payout report does not show
The second number
True net profit after all fees
Revenue minus every cost involved in the sale – not just the “payout” figure your platform shows you, which typically already has some fees stripped out and others hidden.
This is where most sellers get caught out. Shopify, Amazon and Etsy payout reports rarely show the full fee picture in one place: transaction fees, currency conversion charges, chargeback and refund costs, storage or fulfilment fees, and shipping shortfalls – the gap between what you charge for postage and what it actually costs – all chip away at margin separately, often on different statements. Add VAT once you are trading above the registration threshold and it is easy to see revenue land in your account that is not actually yours to keep. Shopify sellers in particular deal with payout timing that does not match order dates, meaning a “profitable month” on paper can include payouts for orders placed weeks earlier under different fee structures – our Shopify accounting team reconciles payouts down to the order level specifically so this does not get missed.
Worked example: the bestseller that loses money
Here is a simplified version of a pattern we see often. A seller’s top product – the one driving most of their order volume – looks like their best performer:
The sale price is not what you keep.
£9.00£5.25£1.05£8.00£2.50£9.20ProductCommissionProcessingAdvertisingShippingWhat you keep
Not £26.00 as assumed – the true contribution margin on this “bestseller” was £9.20.
Once refunds and a share of monthly software and fulfilment overheads are factored in, that “bestseller” was closer to break-even than a genuine profit driver – and on months with a slightly higher ad cost per acquisition, it tipped into a loss entirely. Nothing here was hidden or unusual. It is simply what happens when a product is judged on sale price and order volume instead of contribution margin per channel.
The cash sitting on your shelves
The third number
Cash tied up in stock
The value of inventory sitting unsold, calculated as stock on hand multiplied by cost per unit. It is money that has left your bank account but has not yet come back in as a sale.
This is the number that turns a profitable-looking business into a cash-flow crisis. A seller can have a genuinely healthy margin on paper and still run out of cash, because that margin is locked up in pallets of stock rather than sitting in the bank. It is especially common after a strong sales month, when the instinct is to reorder heavily on the bestseller – sometimes before checking whether last month’s stock purchase has actually been paid back by sales yet.
What good versus worrying looks like
| Signal | Looks good | Worth investigating |
|---|---|---|
| Contribution margin per channel | Stable or improving month to month, consistent across your top 3 channels | Falling steadily on your highest-volume channel, or wildly inconsistent between channels |
| True net profit after all fees | Reconciles closely to your actual bank balance each month | A noticeable, unexplained gap between “platform profit” and cash in the bank |
| Cash tied up in stock | Stock turnover rate holding steady or improving | Stock turnover slowing while reorders continue at the same pace |
How often should you check these numbers?
Monthly, at minimum – waiting until year-end means finding out about a margin problem after eleven months of it quietly eating into your cash, rather than after one.
Checking these three numbers takes minutes once you have proper reporting in place, but it takes hours – and usually a lot of guesswork – if you are piecing it together manually from separate platform statements each time. This is exactly what structured management accounts are built for: monthly profit and loss, cash flow, and margin reporting that already has the fee and stock detail built in, so the three numbers above are sitting in front of you rather than something you have to reconstruct from scratch. A good e-commerce accountant gives you contribution margin, true net profit and stock position on one page every month, whether you are on Shopify, Amazon or several channels at once.
Frequently asked questions
Why is my Shopify or Amazon revenue higher than my actual profit?
Because platform “revenue” or “payout” figures typically do not fully account for advertising spend, payment processing fees, refunds, shipping shortfalls and product cost – all of which reduce true profit but are not always visible on the same statement.
What is a good contribution margin for an online seller?
It varies by product and channel, but the number itself matters less than the trend – a contribution margin that is stable or improving month to month is a healthier sign than any single target percentage.
How do I know if too much cash is tied up in stock?
Track your stock turnover rate monthly. A steadily slowing turnover rate – stock taking longer to sell through – is usually the earliest warning sign of a cash flow problem, often before it shows up anywhere else.
Do I need an accountant if I already use Shopify or Amazon’s built-in reports?
Built-in platform reports are useful for order-level detail but rarely reconcile fees, VAT and stock into one true profit figure – a specialist e-commerce accountant builds that reconciliation so you are working from real numbers rather than a partial picture.
At what turnover should an online seller register for VAT?
UK sellers must register once taxable turnover exceeds £90,000, though some register earlier to reclaim VAT on costs – see HMRC’s VAT threshold guidance for the current rules.
Work with A2Z
See your real numbers, not just your dashboard
If you are not confident you could answer “what’s my actual profit this month?” in under a minute, that’s usually a reporting problem, not a business problem. We build monthly management accounts specifically for online sellers, with contribution margin, true net profit and stock reporting built in from day one.
No obligation, same-day response. Or call us now on 01224 042961.
