Understanding e-commerce finance basics is crucial for any brand owner.

I've witnessed 7-figure brands fail due to poor financial understanding, despite having strong products, marketing & everything else.

You don't need to be a financial expert to grasp the fundamentals.

As someone who transitioned from engineering to marketing, hated finance, I learned these essentials out of necessity.

Let me break down the basics simply, helping you focus on key financial metrics beyond just ROAS.

See Where Every Dollar of Revenue Ends Up

• Cost of Delivery (COD)

• Gross Profit

• Ad Spend

• Contribution Profit

• Operating Expenses

• Net Profit

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Disclaimer: This framework is not intended for accounting or tax reporting purposes — it's designed to help founders and marketers make smarter, faster decisions for growth and profitability.

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📊 Sales Breakdown – From Gross to Net

When team members discuss sales or revenue figures, or when comparing numbers across different platforms, are you certain everyone is referring to the same metric?

Understanding the different sales and revenue metrics used in e-commerce is essential.

Keep in mind that these metrics may be defined differently across various platforms.

The definitions provided here follow Shopify's standard metrics.

When using other data or financial platforms, verify that their metric definitions align with Shopify's.

Gross Sales

→ Total customer payments before any deductions. (Input)

Discounts $

→ Total value of discounts or promos applied. (Input)

Discounts %

→ % of Gross Sales given as discounts

→ Formula: (Discounts $ ÷ Gross Sales) × 100

Order Revenue

→ Gross Sales minus Discounts

→ Formula: Gross Sales - Discounts $

Returns $

→ Dollar value of returned orders. (Input)

Returns %

→ % of Gross Sales refunded

→ Formula: (Returns $ ÷ Gross Sales) × 100

Total Sales

→ Order Revenue minus Returns

→ Formula: Order Revenue - Returns $

Taxes $

→ Taxes collected on orders. (Input)

Taxes %

→ % of Total Sales collected as tax

→ Formula: (Taxes $ ÷ Total Sales) × 100

Shipping $

→ Shipping charges collected from customers. (Input)

Shipping %

→ % of Total Sales from shipping revenue

→ Formula: (Shipping $ ÷ Total Sales) × 100

Net Sales

→ Total Sales minus Taxes and Shipping

→ Formula: Total Sales - Taxes $ - Shipping $

🚚 Cost of Delivery (COD) – What It Takes to Fulfill Orders

COGS

→ Cost of Goods Sold (product costs). (Input)

COGS %

→ % of Net Sales spent on goods

→ Formula: (COGS ÷ Net Sales) × 100

Shipping – Pick & Pack

→ Labor + materials to prep & pack orders. (Input)

Shipping – Carrier

→ Postage/shipping service fees. (Input)

Payment Processor

→ Fees from Stripe, PayPal, etc. (Input)

Total COD $

→ All costs to fulfill an order

→ Formula: COGS + Pick & Pack + Carrier + Payment Processor

COD %

→ % of Net Sales used for delivery

→ Formula: (Total COD $ ÷ Net Sales) × 100

📣 Ad Spend – Total Advertising Cost

MER (Marketing Efficiency Ratio)

→ Measures efficiency of marketing relative to revenue.

Common calculations:

→ 1. (Net Sales ÷ Total Marketing Spend) → Blended ROAS

→ 2. (Total Marketing Spend ÷ Net Sales) × 100 → % of Net Sales