How to measure your store's profitability with KPIs

Revenue looks great, but are you actually profitable? Many e-commerce store owners celebrate growing sales without realizing they're losing money on every order. Profitability is more complex than simply comparing revenue to costs—it requires tracking the right Key Performance Indicators that reveal your true financial health. Without these metrics, you're steering your business blindfolded.

Measuring profitability through KPIs gives you the insights needed to make smart decisions about pricing, marketing spend, inventory, and growth investments. This guide breaks down the essential profitability metrics every e-commerce business should track and shows you exactly how to use them to build a sustainably profitable store. Let's move beyond vanity metrics and focus on numbers that actually matter to your bottom line.

Why revenue alone doesn't tell the profitability story 💰

A store doing $100,000 in monthly revenue might be thriving or bleeding money—revenue alone doesn't tell you which. Two stores with identical revenue can have completely different profit margins based on their costs, pricing strategies, and operational efficiency. This is why profitability KPIs are essential—they reveal what happens after all expenses are paid.

Consider a store that spends $80 acquiring each customer through paid ads but only makes $60 on the average first order. That's a $20 loss per customer, even though revenue is coming in. Profitability metrics would catch this problem immediately, while focusing only on revenue would miss it entirely. Understanding the difference between top-line growth and bottom-line profit keeps your business sustainable long-term.

Gross profit margin: your profitability foundation

Gross profit margin shows how much money you keep after paying for the products you sell. Calculate it by subtracting cost of goods sold from revenue, dividing by revenue, and multiplying by 100 to get a percentage. If you sell products for $10,000 and they cost you $6,000 to acquire or manufacture, your gross margin is 40%.

This metric varies significantly by industry. Fashion and accessories often run 50-60% gross margins, while consumer electronics might operate at 20-30%. What matters most is knowing your gross margin and ensuring it's sufficient to cover operating expenses and leave room for profit. If your gross margin is too thin, no amount of sales volume will make you profitable—you need to either increase prices or reduce product costs.

Track gross margin by product category and SKU to identify your most profitable items. You might discover that certain products have excellent margins while others barely break even. This knowledge helps you decide which products to promote heavily and which might need price adjustments or discontinuation.

Customer acquisition cost (CAC) and its impact 🎯

Customer Acquisition Cost measures how much you spend to acquire each new customer. Calculate it by dividing total marketing and sales expenses by the number of new customers acquired in that period. If you spent $5,000 on marketing last month and gained 100 new customers, your CAC is $50.

CAC directly impacts profitability because it determines whether you can afford your growth strategy. If your CAC exceeds your profit on the average first order, you're losing money on customer acquisition—unless customers return for repeat purchases. Compare CAC against Customer Lifetime Value to ensure you're acquiring customers profitably in the long run.

Break down CAC by marketing channel to identify your most efficient acquisition sources:

• Organic search: Usually lowest CAC but requires time investment

• Email marketing: Extremely low CAC for repeat purchases

• Paid social: Moderate to high CAC but scalable quickly

• Influencer partnerships: Variable CAC depending on agreement structure

Optimize your marketing mix by shifting spend toward channels with the best CAC-to-LTV ratios. This data-driven approach to marketing allocation significantly improves overall profitability.

Net profit margin: the ultimate profitability metric

Net profit margin reveals what percentage of revenue becomes actual profit after all expenses—product costs, marketing, operations, software, salaries, and everything else. Calculate it by subtracting all expenses from revenue, dividing by revenue, and multiplying by 100. A net profit margin of 10% means you keep $10 of every $100 in revenue as profit.

Most successful e-commerce stores aim for net margins between 10-20%, though this varies by business model. Dropshipping stores often operate at 10-15% margins due to lower overhead, while stores with their own inventory might target 15-25% if they manage costs efficiently. New stores frequently operate at break-even or small losses initially while investing in growth, but should have a clear path to profitability.

Return on ad spend (ROAS) for marketing efficiency 📊

ROAS measures how much revenue you generate for every dollar spent on advertising. Calculate it by dividing revenue from ads by ad spend. If you spent $1,000 on Facebook ads and generated $4,000 in revenue, your ROAS is 4:1 or 400%. This metric tells you whether your advertising is profitable before accounting for product costs and other expenses.

The ROAS you need for profitability depends on your margins. With a 50% gross margin, you need approximately 2:1 ROAS to break even on ad spend. With a 25% margin, you need closer to 4:1 ROAS. Calculate your breakeven ROAS using your gross margin, then target ROAS at least 25-30% higher to ensure profitability after all other costs.

Track ROAS by campaign, ad set, and even individual ads to identify top performers. Pause or optimize poor performers quickly, and scale campaigns that exceed your target ROAS. This continuous optimization process keeps your advertising profitable as costs and competition evolve.

Average order value (AOV) and profit per order 💳

Average Order Value tracks the mean revenue per transaction. Calculate it by dividing total revenue by number of orders. Increasing AOV is one of the fastest ways to improve profitability because you spread fixed costs like payment processing and shipping across larger transactions.

Strategies to increase AOV include:

• Product bundling: Offer package deals at a slight discount

• Free shipping thresholds: "Spend $50 more for free shipping" encourages larger carts

• Upsells and cross-sells: Suggest complementary products at checkout

• Volume discounts: "Buy 2, get 15% off" increases units per transaction

Calculate profit per order by subtracting all variable costs from AOV. This includes product costs, payment processing fees, shipping, and packaging. If your AOV is $75 and costs are $50, your profit per order is $25 before fixed costs. This metric helps you understand how many orders you need to cover fixed expenses and generate target profits.

Inventory turnover and cash flow health

Inventory turnover measures how many times you sell through your entire inventory in a period. Calculate it by dividing cost of goods sold by average inventory value. A turnover rate of 6 means you cycle through your inventory six times per year. Higher turnover generally indicates better profitability because your cash isn't tied up in unsold stock.

Slow-moving inventory kills profitability by tying up cash that could be invested in faster-selling products or marketing. Use inventory analytics to identify products that aren't turning over quickly, then discount them to free up cash flow. Meanwhile, keep high-turnover items well-stocked to avoid losing sales to stockouts.

Creating your profitability dashboard 📈

Tracking profitability KPIs manually is time-consuming and error-prone. Build a dashboard that automatically pulls data from your e-commerce platform, advertising accounts, and accounting software. Most stores use tools like Google Analytics, Shopify Analytics, or dedicated e-commerce analytics platforms to centralize these metrics.

Review profitability KPIs weekly for operational metrics like ROAS and CAC, monthly for broader trends in margins and net profit, and quarterly for strategic planning and goal setting. Set target ranges for each metric based on industry benchmarks and your business goals, then use these targets to guide decision-making. Profitability isn't one metric—it's a collection of KPIs that together tell the complete story of your financial health. Master these measurements, and you'll make confident decisions that grow your business sustainably.

Track the revenue foundation of profitability with daily sales reports. Try Peasy for free at peasy.nu and get automated emails with sales and order data (excluding VAT) delivered every morning with automatic comparisons.