Cost of Goods Sold & Profitability: Understand your online store's break-even point

Revenue is not the same as profit. You can sell millions and still lose money if your purchase prices are too high compared to your selling prices. Cost of Goods Sold & Profit gives you an overview: how much do you actually earn on your products - and how does it develop over time?

The statistics automatically calculate your profit margin per month based on your actual orders and the purchase prices you have registered for your products.

How to use Cost of Goods Sold & Profit in Shoporama

You can find the statistics under Statistics → Cost & Profit in Shoporama admin. The data is calculated automatically every night, so you don't need to do anything to keep it updated.

At the top you see four overview maps:

• Revenue ex. VAT - your total sales excluding VAT and shipping for the selected period.
• Cost of goods sold - what the items cost you to purchase (quantity sold × purchase price).
• Profit - revenue minus cost of sales. This is your gross profit, i.e. what you earn before fixed costs such as salaries, rent and marketing.
• Coverage ratio - profit as a percentage of revenue. The higher it is, the more of every dollar of revenue turns into profit.

The table shows the same figures broken down by month so you can follow the development over time. A bar chart gives you a visual overview with revenue and cost of sales as bars and profit margin as a curve.

What is a good coverage ratio?

It depends on your industry, but as a rule of thumb for e-commerce:

• Above 40% - you have a healthy business with room for marketing, operations and profits.
• 20-39% - average. You're making money, but there's probably room for improvement.
• Below 20% - warning. Your margins are squeezed and it may be difficult to cover fixed costs.

The table uses color coding so you can quickly see how each month is performing. Green is good, orange is average and red requires attention.

Comparison with last year

Under revenue, the percentage change compared to the same month last year is shown. For example, +12% compared to last year means that you sold 12% more in that month than you did a year ago.

Under Coverage, the change is shown in percentage points (pp). For example, +3.2pp means that your coverage rate has increased 3.2 percentage points compared to the same month last year. Percentage points are the actual difference between two percentages - an increase from 35% to 38.2% is an increase of 3.2 percentage points.

The comparison makes it easy to spot seasonality and long-term trends in your business.

Missing purchase prices

If you have products without a purchase price, an alert will show how many products are missing and what percentage of revenue they represent. The more products that are missing, the more inaccurate the picture becomes.

You can click on the warning to see a list of the products in question and go directly to them to fill in the purchase price. If you have variants with different purchase prices, you can enter them per variant - the statistics will automatically use the variant price if it is filled in.

Five things you can do with the numbers

1. Spot fluctuations early. A declining coverage rate over several months is a warning signal. Is it due to rising purchase prices? More discounts? Changing product mix? Find the cause before it becomes a problem.
2. Evaluate supplier agreements. If your purchase prices are rising but sales prices aren't keeping up, your margins will drop. Use the numbers as an argument in negotiations with suppliers.
3. Check your pricing. Combine the cost of sales statistics with the ABC analysis to find products that sell well but have low margins - and vice versa.
4. Plan promotions with your eyes wide open. Discounts lower your coverage rate. It's fine if you know this in advance and have calculated what it costs. Keep an eye on coverage during promotional months.
5. Set goals. Use the historical conversion rate as a baseline and set a realistic goal for the next 6 months. Follow up monthly.

Combine with ABC analysis

Cost of Sales & Profit gives you the big picture, while the ABC analysis goes down to the product level. Use them together:

• See the overall coverage in Cost of Sales & Profit - is it satisfactory?
• Open the ABC analysis and select Contribution Margin as the metric - find the products that contribute most to the contribution margin.
• Compare with ABC based on Revenue - products that are A on revenue but C on contribution margin are warning signs.

Good to know

• The calculation is indicative. The statistics use the purchase prices registered on your products right now. If you have changed the purchase price since the items were sold, the calculation will reflect the current price, not the historical one. Keep your purchase prices up to date for the most accurate figures.
• Data is updated every night. The statistics are automatically recalculated for the past three months every night, so new orders and changes are captured continuously.
• Only paid orders are counted. Canceled and unpaid orders are not included in the calculation.
• Credit orders are filtered out. Credit notes (copies of orders with negative amounts) are not counted so that returns do not disturb the picture.

Get started

Open Cost of Goods Sold & Profit and check your contribution margin for the past few months. Make sure your purchase prices are filled in - the more complete the data, the better the insights.

Use the statistics as a regular checkpoint in your business. A monthly look at the coverage ratio takes a few minutes but gives you a clear picture of whether your business is moving in the right direction.

Read more about it

• ABC analysis: Find out which products make you money
• Contribution margin - dictionary
• Pareto principle (80/20 rule) - dictionary