Confronting the eCommerce Net Profit Crisis

Net Profit is the Critical eCommerce Problem

Over 80% of SME eCommerce Merchants are not profitable — and for most profitability is not a problem — it's a quiet crisis.  All the Net Profit data we can find backs up this analysis. Yet one seems to have an ANSWER.  Is this why the eCommerce Net Profit PROBLEM is rarely discussed?

Teams focus on technology, apps, channels — and on metrics like ROAS, CAC and MER. Yet these teams, and even Owners, don’t know the metric that ultimately determines their fate: Net Profit and Net Profit Margin.

The problem is systemic — Net Profit keeps the Owner in business - yet they can’t quite identify what’s actually holding their Profit back. eCommerce doesn’t have a marketing, technology or an operations problem — it has a Net Profit Margin problem.  By naming the ACTUAL PROBLEM — we can start to fix it.

Do the Numbers Back up a Net Profit Problem?

Merchants can confirm this for themselves by reviewing their own accounts. When you isolate eCommerce revenue from retail, the picture for most becomes clear — the majority of SME Merchants generate revenue with no actual profits.

Importantly the Industry-wide data ALL confirms this. McKinsey places eCommerce Net Profit Margins at 2–5%.  This 2–5% Margin is inflated by large profitable Merchants included in the McKinsey "eCommerce market definition" of "Companies that sell goods through digital channels and fulfill them directly".  All the Market research we can find shows SME Net Margin is much worse than 2 to 5%.   BeProfit reports an average Merchant Net Margin of 0.64% — meaning Merchants keep less than 1 Penny of Profit per £1 sold.  Any business running at 0.64% is not viable in the mid term — it is a money pit sustained by cross-subsidising losses from retail, or accumulating debt.

This is not just an SME problem. When you review public accounts, the pattern repeats. Allbirds — a celebrated Shopify case study — is currently posting a Net Margin of negative 50.9% on $500M turnover. Gymshark reports a Net Margin below 2%, falling year on year. On Shopify, when you look at actual financial accounts and not their marketing narratives, you often see the same pattern — Merchants scaling losses.

So Who Makes the Money in eCommerce? 

Once the market is unpacked, the structure becomes clear. eCommerce has thin margins for Merchants, but McKinsey also identifies it as BY FAR the largest “Tech Market” — a market projected to reach $14–$20 trillion by 2030, measured by merchant turnover.

The profit pool typically sits in the infrastructure, technology and channels surrounding the Merchants, not within the Merchants themselves. eCommerce turnover is massive, so even a small part of that turnover is still a big number.  Merchant turnover feeds the entire eCommerce ecosystem — yet the Merchants —as a group — fail to generate Margin themselves.

• Shopify: 23% Net Margin
• Google: 32% Net Margin
• Meta: 30% Net Margin
• Agencies: 15% Net Margin
• SME MERCHANTS: BREAKEVEN or LOSS MAKING

Merchants initially gain turnover and expect the profit will follow.  As their margin of loss is normally small, they continue to inject cash, believing profitability is just around the corner — one more app or one more channel.  For some, that day comes — but for most serious profitability does not — and online selling becomes subsistence or eventual burn out.

The ecosystem extracts value, and the merchant subsists. Merchant cash erodes slowly, not catastrophically, giving the illusion that things are manageable. This keeps Merchants believing that one more app, one more channel, one new agency or change in technology will finally make everything work. This cycle continues until the funding source — retail profits, debt or investment — is exhausted.

IRP's Net Profit Visibility Offers a New Start 🌈

The path to Net Profit begins with Visibility — and if you’re not fixated on Net Profit, you may have already lost – you just don't know it yet. 

The entire industry must shift from diversionary metrics and tactical distractions – and the conversation has to start and stay – with the only metric that ultimately matters  – Merchant Net Profit and Merchant Net Profit Margin. Every other metric is either a component of Net Profit or a distraction from it. 

Merchants then have their best chance of making Net Profit when they can see Net Profit. That means Net Profit visibility in real time - by SKU, category, brand, channel, order and customer. When Net Profit is visible at this level, the Merchant finally understands their true position. IRP's Net Profit visibility becomes a "Profit Force" – when you can see Net Profit –  you tend to make it. 

Conclusion

Every serious piece of evidence backs up the Merchant Net Profit Problem.  Merchants can look at their accounts to know its real – and until the Net Profit problem is SOLVED it is the only eCommerce PROBLEM to talk about.

Our Real-time Net Profit Visibility is a breakthrough. When Merchants can see Net Profit as it happens: Irrational spending disappears, channel decisions become objective, operations become efficient –  and the true unit economics of eCommerce finally come into view.

Net Profit forms the foundation of the final, REALITY BASED MODEL of eCommerce — a model built on financial truth, not abstractions. When every Merchant can see Net Profit in real time – they finally have their best chance of making it.

Sources
Alvarez and Marsal - "The True Cost of Online"
McKinsey - "The Next Big Arenas of Competition"  
IRP Research - All Serious Research Validates a Net Profit crisis