Ecommerce accounting should not be approached in the same way as retail accounting
To avoid misunderstandings between ecommerce and finance departments, the difference between standard retail accounts and online accounts needs to be made clear.
Standard retail accounts
In standard retail, or even B2B selling, there are essentially only sales and overheads:
Shop Sales |
Total |
Sales |
£100,000 |
Product margin |
50% |
Gross profit |
£50,000 |
Overheads |
£30,000 |
Net profit |
£20,000 |
Standard retail offers a clear layout to assess profitability. Footfall (shop traffic) is driven through the sales line by specific discounts and promotions or as a general marketing overhead.
Online accounts
Online accounts have additional variable cost that should be evaluated as a cost of selling. This is because you have to pay for footfall as an unavoidable difference between online and offline selling.
Online Sales |
100K Sales |
200K Sales |
1M Sales |
Online sales |
£100,000 |
£200,000 |
£1,000,000 |
Product margin |
50% |
50% |
50% |
Gross profit |
£50,000 |
£100,000 |
£500,000 |
Variable online marketing costs (CPA 5%) |
£5,000 |
£10,000 |
£50,000 |
IRP Commerce Cloud |
£5,000 |
£10,000 |
£50,000 |
Gross profit after online marketing spend |
£40,000 |
£80,000 |
£400,000 |
Overheads |
£30,000 |
£50,000 |
£200,000 |
Net Profit |
£10,000 |
£30,000 |
£200,000 |
* Online marketing spend is the required spend on well-understood online marketing channels – Google PPC, Facebook Paid, Affiliates & Email. Overheads will grow - in our experience economies of scale on overheads and margin improvements begin to pick up >5M creating a stable model >10M.
This cost of selling is - unfortunately - extremely variable and depends on the skills of service providers who drive the online traffic helped by the IRP Marketing Cloud. You have to tightly manage this cost of selling as an acceptable percentage cost of all sales – the cost per acquisition (CPA%) - and then model this figure into the accounts to remain profitable.