Common Mistakes When Calculating Profit Margins for Shopify Stores
Your Shopify store may succeed or fail depending on how you track and determine your profit. The point is that mistakes are so easy to make, which can lead to wrong profit calculations and misrepresentation of your Shopify store's actual financial health.
With a lot of factors, it is understandable that mistakes are common in Shopify profit calculations. By basing your strategic plans on inaccurate profit predictions, you run the risk of investing your money in the wrong things, spending more than you make, and putting your business' finances in jeopardy.
In this blog, we will look at some of the most frequent mistakes Shopify store owners like you will make when calculating profit and how to get rid of them with the help of TrueProfit.
Mistakes to Avoid When Calculating Profit for Your Shopify Store
Mistakes can happen in every aspect of your business operation. It is anybody’s wish to avoid or, at least, minimize them. Yet, it will only be a wish if you don’t first identify your mistakes and where or why they happen.
Having said that, we will show you the top 6 common mistakes you will face when calculating the Shopify profit of your store.
#1. Using Spreadsheets to Calculate Profits
Many Shopify store owners rely on spreadsheets to track profits, but this method can lead to significant errors. Manually inputting data increases the likelihood of miscalculations, missing transactions, and outdated information. Moreover, as your business grows, spreadsheets become inefficient due to the sheer volume of data you need to manage.
Instead of relying on spreadsheets, consider using automated tools that sync with your store and provide real-time profit calculations. This ensures accuracy and saves you time that could be better spent on growing your business.
#2. Making Assumptions
Data is your best friend. Your Shopify business should take advantage of the data's availability, comprehend the story it is telling you, and act on it. Therefore, you should never rush into conclusions without enough data.
One of the big mistakes that you may encounter when calculating and analyzing your key eCommerce metrics is making assumptions. This practice is very dangerous since you can mislead and trick yourself into believing in something that you think is true when it might not be.
Here are some wrong assumptions you may make during the time calculating your profits:
- Assuming that higher revenue means higher profit — Focusing solely on revenue can be misleading, as it doesn’t account for costs and expenses.
- Assuming that all products and customers bring equal profitability — Without segmenting your customers and products based on profitability, you may end up investing resources inefficiently.
Or simply calculate your profits with this free profit margin calculator.
#3. Leaving Out “Insignificant” Costs
When calculating profit for your Shopify store, costs such as COGS (cost of goods), marketing, and shipping are frequently considered first, as they have an obvious impact on your profit. Yet, there are less obvious costs that could affect your profit calculation, even with just a small degree.
Your computation is bound to produce an inaccurate result if you underestimate and leave out “insignificant” costs from it. It is understandable that certain costs may slip through the cracks, given the large number of less obvious costs that are incurred.
Some of the most frequent costs that you possibly overlook or forget to track are as follows:
- Returns & Refunds
- Payment Processing Fees
- Third-Party App Fees
- Outsourcing Costs
- Costs of Professional Services
#4. Tracking Profit Only Once in a While
Many eCommerce business owners approach their duty of measuring profits in a "set and forget" manner. And you might be one of them! No matter how much the business changes, you may just choose the lazy strategy of staying with the same profit analysis findings.
Instead, tracking profits on a daily or weekly basis allows you to make informed decisions. Regular tracking helps you avoid cash flow issues, ensure timely payments, and make strategic adjustments as needed.
#5. Focusing on Metrics That Don’t Matter
It is easy to overlook the metrics that are most important in data-rich environments like the eCommerce world. Thus, you should decide on the metrics that you can use to improve your profitability before calculating profit.
The most critical metrics include:
- Net profit & Net profit margin
- Conversion rate
- Customer acquisition cost (CAC)
- Average order value (AOV)
- Customer lifetime value (CLV)
By focusing on the right data, you can ensure that your profitability calculations provide valuable insights for business growth.
#6. Wasting Too Much Time Calculating Profit
Needless to say, tracking and calculating profit for your Shopify store is a must. However, don’t just be obsessed with that as you may be wasting your time!
Instead of spending hours manually calculating your profit, leverage automation tools that handle the process for you. These tools ensure accuracy while freeing up your time for more strategic tasks.
Stay on Top of Your Shopify Profit Margins with TrueProfit
As mentioned earlier, tracking profits doesn’t have to be a struggle because TrueProfit makes it effortless.
TrueProfit is a net profit analytics solution designed for Shopify stores. It seamlessly integrates with all major ad channels, shipping providers, and dropshipping platforms, automatically gathering essential data. With an intuitive dashboard, it puts the most important metrics at your fingertips, keeping your net profit front and center.
As a bonus, TrueProfit goes with a mobile app, giving you access to your profit and loss anywhere you go.
With a one-time setup, you can forever gain access to:
- Real-time profit dashboard
- Detailed product analytics of every SKU, including frequently bought-together items
- Comprehensive customer profitability analytics like CLV, CAC, LTV:CAC ratio, etc.
- Aggregated view of multiple Shopify stores in one central hub
- Advanced COGS, shipping costs, and custom expenses tracking
Irene Le
Irene Le is the Content Manager at TrueProfit, specializing in crafting insightful, data-driven content to help eCommerce merchants scale profitably. With over 5 years of experience in content creation and growth strategy for the eCommerce industry, she is dedicated to producing high-value, actionable content that empowers merchants to make informed financial decisions.