An ecommerce company has $2 million of Amazon sales and $1 million of Shopify sales. It is easy to look at those numbers and assume Amazon is twice as important to the business. But how much money did you actually make from each channel?
That is the problem with looking at multi-channel sales without looking at ecommerce multi-channel profitability. Amazon, Shopify, Walmart and other platforms have very different costs. Once you account for those costs, the channel with the most sales may not be the one producing the most profit.
Start With Gross Profit
The first number I want to know is gross profit. If Amazon generates $2 million of sales with $1.2 million of product cost, we have $800,000 left. If Shopify generates $1 million of sales with $550,000 of product cost, we have $450,000 left.
Now we have something more useful than sales.
But we are not done. Amazon may have marketplace fees, FBA fees, storage costs, returns and advertising. Shopify may have payment processing, fulfillment, shipping and advertising costs.
If Amazon has $500,000 of those costs and Shopify has $200,000, the picture changes. Amazon generated $2 million of sales and left us with $300,000. Shopify generated half the sales and left us with $250,000.
That does not mean Shopify is better than Amazon. It means we finally have enough information to start asking the right questions.
What Costs Should We Include?
I would not try to allocate every expense in the company to a sales channel. Your accounting bill does not suddenly become an Amazon expense because Amazon represents 60% of your sales.
Instead, I want to identify the costs that are directly related to selling through that channel. That normally includes product cost, marketplace fees, payment processing, fulfillment, shipping, returns and advertising.
Advertising is particularly important. Selling through your own website may avoid some marketplace fees, but you still have to get customers to the website. If it costs $40 of advertising to generate a $100 Shopify order, we need to know that.
The same applies to Amazon advertising. A product can have a great gross margin before advertising and a very different margin after it.
Your Accounting Has to Give You the Information
You do not need a 300-account chart of accounts to figure this out. In fact, that usually makes things worse.
We can use QuickBooks Online classes or locations when they make sense. We can also use reports from Amazon, Shopify and other systems to provide detail that does not belong in the general ledger.
The important thing is being able to get from sales to a reasonable contribution margin by channel. Once we can do that, we have information an owner can actually use.
What Do You Do With the Information?
Maybe Amazon generates most of your sales and most of your profit. Great. Maybe Shopify produces less revenue but a better return on every dollar of advertising. Maybe Walmart generates plenty of activity but very little profit.
There is no answer that applies to every ecommerce business.
That is why we want the accounting to tell us what is happening in your business. Knowing that Amazon sales increased 20% is useful. Knowing whether you made any more money from that 20% increase is much more useful.
Sales are important. But I would rather know what you kept.