How do you determine how much profit you are making in your shopify store? Like any business, your topline revenue means nothing if all of it is going into advertising, expenses and other things.
You need to be making PROFIT to pay yourself as well as enough liquidity to reinvest – so you can grow your business comfortably and retire.
So – MagmaCharts has a feature called the Income statement that automatically populates all your expenses into a statement similar to your financial statements, so that at 1 glance you understand which part of your business is sucking up all the cash.
When you use MagmaCharts, you would be able to see something like this in your dashboard. After choosing the date range,when you scroll to the bottom, you would be able to see your net profit number immediately.
Let’s start from the top and examine where your expenses are going.
Revenue/Total Sales: Is the net sales, amount of topline revenue that your entire business is making, determined by [quantity of orders x average order value] or [quantity of orders x order price].
Discounts: Discounts are deducted from your topline as they are deducted from your total price when given to the customer.
Refunds: When you refund the customer, you would be taking a loss because these are expenses that were originally categorized as revenue.
Taxes: The taxes you pay are determined by the country of sale. For example, if you were selling to consumers in the EU you would have to pay the VAT tax.
Net Revenue: Net revenue amount is determined by deducting discounts, refunds and taxes from the Total sales figure.
COGS: Cost of goods sold is calculated from how much you will pay for the price of manufacturing/producing the product, purely from product costs.
Shipping costs: Shipping costs are very dependent on the delivery carriers such as
UPS, Fedex, Yanwen, Yunexpress or your sourcing agent. Because shipping costs are controlled by the carrier, be aware of these expenses as they are usually out of your control.
Facebook Ad spend: I would presume that you are spending on advertising on facebook and will be deducted from your revenue.
Google Ad spend: Same thing for google.
Transaction fees: You pay transaction fees as part of your paypal, payment processor costs. When you are using a processor such as stripe or paypal, these big tech giants will charge you a % of the costs for using their services.
Shopify Plan: There is a monthly subscription Shopify plan that you will pay to use Shopify’s services. At the time of writing, the Shopify plans are priced at $29, $79, $299 USD per month.
Gross Profit: This is determined by deducting the COGS from the total amount of sales.
Net Profit: This is calculated after subtracting everything from the topline and is how much money goes back into your pocket.
Net Margin: This is calculated by your [net profit/total sales] x 100%. A healthy margin for an e-commerce business should be around the 30-40% profit range. Anything more, you’re good! However, if you already have good ROAS on your campaigns and you are purposely spending a lot more money to grow your customer list faster, hence a smaller net margin – that is ok, because it means you are going for growth and sacrificing profit in the short term.
HOW TO USE THE INCOME STATEMENT TO OPTIMIZE FOR PROFIT
Table breakdown of the income statement:
(The figures in the brackets are considered deducted from the total amount.
We build the income statement feature because at one glance – you can see what’s sucking up unnecessary capital for your business and you can dive into each component to fix it.
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