Why Net Profit Gross Profit Are No.1 Ecommerce Metric

9 Min. Read

Focusing on Sales / Revenue only, – with no understanding of what your true Profit is could be a recipe for financial difficulty or disaster even (especially in 2020, when COVID19 could make or break your business

😷). Higher revenue doesn’t always translate into higher profit. If costs, expenses rise or even rise faster than the revenue, your store can actually make less profit.

You need to make sure you have a proper pricing strategy. Profit margins can provide insights about your business’ financial health.

Let’s see what’ll be cover today:

Table of Contents

What is Gross Profit and why is so important in crisis time

Revenue can often be misleading, especially with wide-ranging profit margins among products, and with intensive use of discounts or coupons. Gross profit can show a more realistic view of your performance.

Basically, it means the percentage of how much money is going to stay in your pocket after a sale. You can sell a lot of product with too much discount and to low or minus margins, which can be make you run out of cash!

net profit report

Why do you need to have a Profit Report?

Low profit margins could suggest a number of issues. Here’s a list of the most usual ones:

  • COGS – Cost of Goods Sold
  • Cost of landing the items in your warehouse
  • The cost of the warehouse
  • CAC – Customer Acquisition Cost
  • Cost of Shipping
  • Taxes

It’s crucial for a business to monitor their profit margin closely, as it’s a great tool to identify areas ripe for improvement and optimize their earnings. E.g. stop spendig on adds with low conversion but high price, or hig conversion, but no margin. We don’t work to get tired but to earn profit!

That’s why keeping the costs low, effectively managing the inventory and optimizing the pricing strategy for maximum profit is as much a determining factor for healthier profit margin as increased sales.

Additional revenue is often more difficult, businesses typically experiment with revenue optimization strategies and tend to look for opportunities to cut down on costs and fine-tune their pricing strategy to improve their profit ratio.

most profitable countries

Although profit margin can be useful for comparing companies with one another, the comparisons should only be drawn between companies within the same industry and ideally, with similar business models.

Seasonality and cyclical sales trends should also be taken into consideration when comparing profit margin over a specific time period.

gross-profit

How is Gross Profit & Margin Calculated?

Gross profit is the difference between net revenue and cost of goods sold. Say your company made $300k in net sales last month. You’ve deducted the COGS and you’re left with $50k.

Your gross  profit is going to be $50,  the profit margin will be 16 % because

300 (Total Sales) – 250 (COGS) = 50 (Net Profit)

50 (Net Profit = Total Sales – COGS) / 300 (Total Sales) = 0,16

What exactly does your Shopify Report Show You?

If you are on the Shopify standard plan ($79) or above you will have access to the Shopify profit report. This report is particularly helpful for the preparation necessary for scaling up, and for the accounting of your Shopify store.  

shopify profit-margin
Source: Shopify

It enables you to take stock, and to consider what else you can do to improve your operations.  Whether it be reviewing costs in terms of shipping, transaction fees or storage.  Or perhaps your clear profit data might point you in a new direction, helping to decide between the individual product variants or category focus.  

Your profit report is about optimizing the daily operation of your store and at the same time growing it in new directions.

Let’s take a look at Shopify profit report in more detail… 

For every product or product variant with a cost defined, your Shopify report will show you over a time period:-

  • Net Quantity
  • Net Sales
  • Cost
  • Gross Margin
  • Gross Profit. (subtract cost from net sales)
profit-by-product shopify
Source: Shopify

In addition to this, the Profit report also provides the ability to filter your sales of products by location, although this is limited to a maximum of 5 locations for the standard Shopify plan ($79) and only increases up to 8 on the Advanced Shopify plan ($299).

Conversific = #1 Alternative for Shopify Profit Reports

There are numerous Shopify apps that add optional useful features to Shopify, including reporting. Some apps use Shopify’s own data while others use Google Analytics.  In order to get the most out of both, ideally, you need to choose an App with a profit report that utilizes both sets of data to produce the most comprehensive, holistic overview of your Shopify store.

Conversific provides exactly that, a holistic view of both GA data and Shopify data with reporting – Gross and Net Profit and custom reporting ultimately leads to better results.

conversific profit report

 

Conversific does not rely just Shopify’s own analytics data, by integrating with Google analytics, it provides an independent source of data, the best of both worlds with a unified holistic dashboard.  It helps you to make better decisions, regardless of your Shopify pricing plan.

The benefits of utilizing GA tracking are many, including powerful Shopify custom reporting.

For example, you’ll be able to track your most profitable marketing channels and focus your resources on the channels with highest impact.

most profitable marketing channels

 

How can you use this data to make your operations more efficient?

Your profit report data enables you to calculate product performance.  It enables you to:-

  • Calculate the total value of all your inventory
  • See the profit per product item or product variant of each item
  • See how products contribute to total gross profit and margin
  • The gross margin in profit report details the effects of discounts
  • The gross margin also includes refunds data for consideration.
 

Probably the most useful section of the Profit report is seeing the effect of your discounts on sales and profit.

How to Generate a Profit Report

To correctly generate a profit report with Shopify you need to add a cost per item to your products, this includes every product variant.

You can view your profit report via the Shopify Admin > Analytics > Reports

Alternatively you can check your most profitable products in Conversific as well.

most profitable products shopify

All the app vendors with profit reporting features promote their app as having “better reports” than those provided by Shopify, both in terms of dashboard display and automation of tasks and the generation of reports.  Consider, you make your decisions based upon how you interpret your store data, and so it’s vital to have a clear understanding of your audience and performance to make the best decisions possible.  

Conversific’s pricing is well thought out with an entirely free plan for Shopify novices, or for those who wish to try before buying. 

Conversific

It is also not limited by store number, so great for those with many Shopify stores, as long as they use the same Google Analytics account.  It is not limited to Shopify either, and so if you have other stores on other ecommerce platforms you can use it on some of these too, including Woocommerce and Shoprenter, both popular alternatives in some countries.

Marketing and Profit Analytics for Shopify and WooCommerce Stores

Skyrocket your online store’s profit, while minimizing the chance of losing capital with Conversific! 📈

Try Conversific Now

Where Conversific differs vs the other applications listed above is that it is not just a reporting tool.  It is designed to provide insights, to benchmark your performance against industry standards to show what you can improve with concrete suggestions that will have an impact.  It includes the usual reporting, including a new Cost of Goods and Profit reports. 

conversific profit report

 

Conversific does not rely just Shopify’s own analytics data, by integrating with Google analytics, it provides an independent source of data, the best of both worlds with a unified holistic dashboard.  It helps you to make better decisions, regardless of your Shopify pricing plan.

The benefits of utilizing GA tracking are many, including powerful Shopify custom reporting.

The pricing is well thought out with an entirely free plan for Shopify novices, or for those who wish to try before buying. 

Conversific

It is also not limited by store number, so great for those with many Shopify stores, as long as they use the same Google Analytics account.  It is not limited to Shopify either, and so if you have other stores on other ecommerce platforms you can use it on some of these too, including Woocommerce and Shoprenter, both popular alternatives in some countries.

This Shopify app is very much the new kid on the block, with only 6 reviews on the Shopify app store, none of them very flattering.  Clearly it is still early days for the app, so bugs are to be expected.  The business model of the app provider is to drawing users in via the promise (USP) of real time profit analysis for free (free trial that is).  It’s other highly attractive feature is that it has a feature which Simplycost lacks, an integration with Google Adwords, not just Facebook (Simplycost only integrates with Facebook). 

Again, this reporting app does not use GA data.

This product is aimed at drop shippers, with integrations with Oberlo, Printful and Shipstation.  While real time profit is instantly an attractive feature, because it suggests instant micro changes that can be leverage to your daily activities to maximize your profit, but it fails to impress with the realtime aspect often not working as it should.  In addition it lacks all the serious professional reporting features of “Conversific” or “Better reports”.

As for pricing, all that’s currently listed on the Shopify App page is “FREE”, but if you venture to their website the following price table is available.  These plans are clearly designed to pick up price sensitive, new Shopify store owners.

accountify

Price $4.99

Free Trial 14 days.

The Simplycost Shopify app does profit reporting and a whole lot more.  The list of reporting features is impressive. However most if not all of these reports can be generated easily via Shopify’s own reporting, all be it they are not as pretty as Simplycost’s versions.  Here the $79 standard “Shopify” must be purchased to access most of the reports listed.  There is no mention of utilizing Google Analytics data. Nor can it integrate with Google Ads for Adword performance analysis.

Simplycost

It’s low price relects the basic functionality, features that are common in other Shopify Reporting apps.

Some of the features are:

Reports

  • Profit by month
  • Profit by day
  • Profit by channel
  • Profit by POS location
  • Profit by order
  • Profit by product title
  • Profit by product variant SKU
  • Profit by product type
  • Profit by product vendor
  • Ad spends
  • Expenses
  • Current inventory

Other Features

  • Bulk upload cost prices.
  • Bulk edit cost prices.
  • Update cost price from Shopify order/product details page.
  • Update cost price of your sales history.
  • View profit per order.
  • Edit cost price of custom items.
  • Support additional cost (e.g: shipping cost, handling cost, etc).
  • Option to include shipping as profit.
  • Export sales orders history with cost price.
  • Export reports.

It also integrates with Facebook ads and automatically does currency conversions, – if the amounts are in different currencies.

Another potential drawback of this app is that it does not offer custom reporting, but then, why would it, it doesn’t have Google analytics data to leverage..

From Price $19.90/month (additional charges may apply)

Free Trial 14 days

This Shopify app has a great many fantastic features, including Cost Of Goods (COGS), Profit and Inventory Valuation, effectively exactly what is available via the Shopify platform directly. Just like the Simplycost app, this app is limited to the data within the Shopify store database and the access to data you have on each plan as well as the other apps it connects and syncs with.  Unfortunately, it does not use data from your Google Analytics account.  

The Better Reports dashboard is less pleasing in terms of UX and presentation, than the other applications listed here.  It is however veryfunctional  and reliable.  It even has custom reporting utilizing other data available from other custom fields, either from Shopify or additional Shopify apps that you would like to leverage.

The Better Reports Shopify app has 283 reviews on the Shopify app store and an impressive 4.9 star ranking.  Pricing is as follows:-

Better Reports

Award winning analytics solution

No. 1 analytics app on Product Hunt
Shopify App Store: marketing and profit analytics