How to Enter Overheads for Accurate Net Profit

The eCommerce Industry Operates on Thin Margins

Net Profit Margin is the central problem in eCommerce. McKinsey’s research consistently shows that the industry operates on margins of just 2–5%, and they further indicate that SMEs as a group are likely loss-making. This “margin problem” is exactly why IRP has focused its research and technology on Net Profit Visibility.

When teams can see — clearly and in real time — what is making money and what is losing money, they can align around bottom-line outcomes. Profit becomes a direct result of selling goods at the right Net Margin.
 

Instant Profit Clarity From Entering 6 Overheads

The IRP doesn’t need 3rd party plugins — it only needs 6 pieces of Overhead data entered each month to accurately calculate Unit Net Profit.  When this overhead data is entered, IRP automatically shows Unit Net Profit extensively in real-time throughout Trader to aid decision-making.

Unit Net Profit is calculated across every SKU, Model, Brand, Category and Order. This becomes the foundation for precise profit-led eCommerce trading — revealing data in IRP Trader, the IRP Insights App and your IRP Daily Trading Email.

Where to Enter your 6 Overheads Values in IRP Admin

This data gets entered into the Costs area of IRP Admin. The Knowledge Base on Overheads can be read here.

1. If Overheads are NOT entered — your IRP will be calculated using a default Overhead value of 15%. You can update this value in your IRP Admin to a more accurate "Overheads Percentage" based on your accounts in (Application Settings > General Site Settings > Overheads Percentage).  An "Overheads Percentage" allows IRP to return Net Profit values.  This will be LESS ACCURATE than entering all 6 numbers.
    
2. To get an ACCURATE Net Profit value you must update your actual OVERHEADS every month. IRP will apply these 6 Overheads Costs across your Orders. The 6 values to enter are:
   1. Payment Processing Percentage: % e.g. 1.5%
   2. Per Order Variable Percentage: % e.g. 2.89%
   3. Per Order Fixed Cost: e.g. £0.57
   4. Shipping Charged: e.g., £ 2065
   5. Shipping Costs: e.g. £4,000
   6. Monthly Fixed Costs: £10,000
       
3. Each Merchant MUST work out these 6 numbers and enter them each month.   These numbers allow the IRP technology to calculate Unit Net Profit accurately which is the amount of profit made on every item. This IRP Unit Net Profit data is unique and invaluable.

The IRP Agency Will see Net Profit — but the Owner has complete control WHO sees the Net Profit number within their internal Team.  Permission is granted via the User Group.

IRP Admin > Edit User Group > Show Net Profit

To read in depth what these 6 simple numbers ARE — read the Overheads Knowledge Base.

Need help? Work With Your IRP Agency

Your IRP Account Manager can guide you through the Data entry of these 6 numbers. The more accurate the numbers are — the more Owners will understand their business.

This level of live profit data is unique to IRP. It enables smarter trading decisions and ensures that every strategy you and your IRP Agency implement is fully aligned to  the Owners bottom-line profitability.

Conclusion

eCommerce has a Net Margin problem. Owners will always find out their Net Profit in the end — but finding out a month later when the accounts come in is too late. Owners also need GRANULARITY on which products made them Profit and how much.

By giving eCommerce Managers Unit Net Profit visibility they can make decisions based on the bottom line in real-time. Why sell best sellers at a low margin? What’s selling at a loss? Where is traffic spend wasted? Is my Facebook working? How do I react to the market? How I drive value?

Over time IRP will be making Overhead data a mandatory part of the Agreed IRP Reporting Requirements. Knowing realtime P&L is IRP’s enduring strategic advantage for Merchants.