---
title: "E-Commerce Profit and Loss Report: How to Prepare It? A Guide to Net Profit by Product"
description: "How do you prepare a profit and loss report in e-commerce? Learn step by step how to calculate gross and net profit, read margins by product and catch missing costs."
url: https://www.faprika.com/en/blog/profit-and-loss-report
language: en
site: Faprika
---

# E-Commerce Profit and Loss Report: How to Prepare It? A Guide to Net Profit by Product

> How do you prepare a profit and loss report in e-commerce? Learn step by step how to calculate gross and net profit, read margins by product and catch missing costs.

**How do you prepare a profit and loss report in e-commerce?** You prepare it by putting side by side the selling price of every product you sell, its cost at the time of the order, discounts and other expenses, and calculating gross and net profit. Looking at profit instead of revenue shows which product and which channel really earn money.

In this guide we explain, for an e-commerce seller, what a profit and loss report should include, how gross and net profit are calculated, how to read margin by product, how to catch products with missing costs and how to turn the report into decisions. Official statements prepared under accounting legislation are a separate matter; this article describes the management report used for sales and operations decisions.

Key Takeaway

“Revenue is a nice number, but it is not profit. The best-selling product may not be the one that earns the most; only a profit and loss report by product shows that.”

## E-Commerce Profit and Loss Report: What Is It?

A profit and loss report in e-commerce is a report that shows what the business earned or lost by comparing the revenue of the sales made in a given period with their cost and expenses. It differs from the official income statement in that it can drill down by product, order and channel.

The report answers three questions: How much did I sell, what did it cost me, and what is left? The difference between sales and cost is gross profit; subtracting expenses such as discounts, commission and shipping from it gives net profit.

| Concept | Short description |
| --- | --- |
| Sales revenue | The amount earned from products sold |
| Cost of goods sold | The purchase or production cost of the products sold |
| Gross profit | The difference between sales revenue and the cost of goods sold |
| Net profit | What remains after discounts, commission, shipping and other expenses are subtracted from gross profit |
| Profit margin | Profit as a share of the selling price |

We recommend reading

How Is Profit Margin Calculated?

## Why Should You Look at Profit, Not Revenue?

Profit can shrink while revenue grows; the causes are discounts, rising commission and shipping costs. A business that looks only at its revenue may think it is growing while it is actually losing money.

- **Discounted sales:** Sales volume rises, unit profit falls, and total profit may decline.
- **High-commission channels:** The same product leaves a different net profit in a different channel.
- **Shipping and returns:** Free shipping and high return rates are hidden costs.
- **Cost increase:** If the purchase price rises while the selling price is not updated, the margin erodes.
- **Wrong product focus:** Spending ad budget on the best-selling product is a waste of resources if it does not bring profit.

*Görsel: Revenue versus profit: the net profit left after subtracting cost, discounts, commission and shipping from sales revenue (The path from revenue to net profit.)*

## Which Items Should a Profit and Loss Report Include?

A profit and loss report must include every item that increases or reduces income. Every expense left out makes profit look higher than it is.

| Pens | Type | Where does it come from? |
| --- | --- | --- |
| Selling price | Revenue | Order |
| Product purchase cost | Cost | Product card or purchase invoice |
| Discounts and coupons | Revenue reduction | Campaign and coupon records |
| Marketplace commission | Expense | The channel's commission rate |
| Payment deduction | Expense | Virtual POS or payment institution |
| Shipping cost | Expense | Shipping agreement |
| Packaging and labor | Expense | Operating expense |
| Returns and cancellations | Revenue reduction | Return records |

## How Are Gross Profit and Net Profit Calculated?

Gross profit is found by subtracting the product cost from the selling price; net profit is found by subtracting discounts, commission, payment deductions, shipping and other expenses from gross profit. Margin is expressed as a percentage by dividing profit by the selling price.

- Gross profit = selling price - product cost
- Net profit = gross profit - discount - commission - payment deduction - shipping - other expenses
- Profit margin (%) = net profit ÷ selling price × 100

The example below is only meant to show the method; the numbers are illustrative, not real statistics.

| Pens | Sample unit |
| --- | --- |
| Selling price | 100 |
| Product cost | -55 |
| Gross profit | 45 |
| Discounts and coupons | -8 |
| Commission and payment deduction | -12 |
| Shipping and packaging | -10 |
| Net profit | 15 |
| Net profit margin | %15 |

In this example, gross profit looks like 45 but net profit drops to 15. A seller who looks only at gross profit cannot see that the product actually leaves only a third of that profit.

## How Do You Read Profit by Product?

The report by product shows which product earns and which one drains resources. The best-selling product and the one that earns the most are often different.

*Görsel: Profit report by product: four product groups by sales volume and profit margin (Product groups by sales volume and margin.)*

| Product group | Feature | What should be done? |
| --- | --- | --- |
| Star | Sells a lot, high margin | Keep stock strong, feature it |
| Workhorse | Sells a lot, low margin | Review price and cost |
| Opportunity | Sells little, high margin | Increase its visibility and advertising |
| Dead weight | Sells little, low margin | Update the price or remove it from the list |

To make this classification, the report must provide units sold, revenue, cost, gross profit and margin by product. When you look monthly or quarterly, it becomes clear which product is gaining weight.

## How Do Products with a Missing Purchase Price Distort the Report?

A product with no cost entered shows its entire revenue as profit in the report and exaggerates the result. So the report should flag products with a missing purchase price separately, and you should complete them.

- **Keep the purchase price on the product card.** Make cost a required field for every new product.
- **Update cost changes.** When the supplier price changes, change the product card too.
- **Use the cost at the time of the order.** If the report is calculated with the purchase price at the moment the order was placed, a cost that changes later does not distort the profit of a past sale.
- **Scan for gaps regularly.** Once a month, list the products with an empty cost and complete them.

Tip

Lock the cost at the time of the order

The purchase price changes over time. If you calculate last month's sales with today's cost, the report misleads. When the report uses the cost at the time of the order, it keeps the profit of past periods correct.

## How Do You Analyze Profit and Loss by Channel?

The same product leaves a different net profit on your own site, on a marketplace and in a store, because commission, shipping and discounts differ in each channel. A report by channel shows which channel earns more per product.

| Channel | General characteristic | Expense to watch |
| --- | --- | --- |
| Your own e-commerce site | No commission, but there is a traffic cost | Advertising, payment deduction, shipping |
| Marketplace | Ready-made traffic, but there is a commission | Commission, campaign participation, returns |
| Physical store | No shipping, but there is operating expense | Rent, staff, register costs |
| Social Commerce | Direct sales | Advertising and messaging effort |

Marketplace commissions change by category, so use the current rate when calculating channel profit. For current rates you can check our article [pazaryeri kategori komisyon oranları](https://www.faprika.com/blog/guncel-pazaryeri-kategori-komisyon-oranlari) .

## How Do You Use Daily, Weekly and Monthly Reports?

Each report period serves a different decision: the daily report catches deviations, the weekly report shows the trend, and the monthly report sets strategy. You should follow daily profit often enough to catch problems but not so often that it causes panic, and monthly decisions deeply enough to act on.

| December | What is it checked for? | Example decision |
| --- | --- | --- |
| Daily | Unexpected drop or spike | Catching the effect of a campaign or a wrong price |
| Weekly | Product and channel trend | Shifting the ad budget |
| Monthly | Overall profitability and product groups | Updating prices, removing products |
| Quarterly | Season and strategy | Choosing suppliers and channels |

*Görsel: Profit and loss report periods: the decisions served by daily, weekly, monthly and quarterly reports (Types of decisions by report period.)*

Comparing the same period with the previous one says far more than a single figure. If profit has fallen compared with last month, ask whether the cause is revenue, margin or expenses: if revenue is flat and margin has fallen, the problem is usually price, cost or discounts; if revenue has fallen and margin is flat, the problem is sales volume and visibility.

## Which Decisions Come Out of a Profit and Loss Report?

A report is useful only if decisions come out of it. If you look at the report and take no action, you are merely reading numbers.

1. **Update the price.** Raise the price of a product with a low margin but good sales, within reason.
2. **Reduce the cost.** Renegotiate with the supplier or look for an alternative.
3. **Direct advertising by profit.** Allocate more budget to high-margin products.
4. **Watch out for campaigns.** Calculate in advance any discount that would wipe out net profit and turn it down.
5. **Remove what causes losses.** Take a product that keeps showing a loss off the list, or correct its price.

We recommend reading

What Is Price Management in

E-Commerce

?

## How to Calculate Product Cost Correctly

Product cost is not just the price paid to the supplier; it includes all direct expenses of getting the product ready for sale. A seller who calculates cost incompletely sees profit as higher than it really is.

| Cost item | Included? | Note |
| --- | --- | --- |
| Supplier purchase price | Yes | Base cost |
| Freight and storage costs | Yes | Cost of bringing the product to the warehouse |
| Customs and import expenses | Yes | Part of the cost for imported products |
| Packaging materials | Yes | Boxes, tape, protective materials |
| Production or contract labor | Yes | If you manufacture your own product |
| General operating expenses | Tracked separately | Fixed expenses such as rent and staff |

Keep in mind that how tax-related amounts are treated (for example, whether VAT is included in cost) may vary depending on your accounting setup; your accountant's guidance is essential here. What matters in a management report is that you calculate product cost with the same method for every product.

## How Do Discounts and Campaigns Affect Profit?

A discount can increase the number of units sold but lowers profit per unit; only net profit shows whether total profit has actually increased. That is why you need to calculate the margin after the discount before joining a campaign.

- **Percentage discount:** When the price drops, the margin falls disproportionately; even a small discount can wipe out a large share of the margin.
- **Coupon and cart discount:** It is deducted from the order total, and which product it belongs to should appear separately in the report.
- **Free shipping:** You take on the shipping cost, which eats into profit just like a discount.
- **Campaign commission:** Marketplace campaigns may carry an extra commission or a price cap.
- **Break-even point:** If net profit after the discount is close to zero, do not join that campaign.

We recommend reading

What Is a Discount Coupon? How to Create One

## How Do Returns and Cancellations Change the Profit and Loss Report?

A returned order gives back the revenue but leaves behind costs such as shipping, labor and sometimes a loss in product value. A report that ignores returns shows profit higher than it really is.

- Report returned orders as a reduction in revenue.
- Count return shipping costs and repackaging labor as expenses.
- Separate products that cannot be resold (damaged or used) and record them as a loss.
- Flag products with a high return rate separately; the problem may lie in the product description, the size or the quality.

## How Do You Separate Fixed and Variable Expenses?

Variable expenses rise with sales (commission, shipping, packaging); fixed expenses are independent of sales (rent, salaries, software subscriptions). Profit per product is usually calculated with variable expenses, while fixed expenses are deducted from total profit.

| Expense type | Examples | Used in product profit? |
| --- | --- | --- |
| Variable | Commission, payment fees, shipping, packaging | Yes |
| Fixed | Rent, staff, software and subscriptions | Deducted from total profit |
| Semi-variable | Advertising, seasonal staff | Can be allocated proportionally |

A product-level report shows you the product's contribution margin, that is, how much it contributes toward covering fixed expenses. If the total contribution margin of all products exceeds your fixed expenses, the business is in profit.

## Example Scenarios in the Profit and Loss Report

### Scenario 1: The best-selling product shows a loss

According to the report, the store's best-selling product leaves no net profit because of discounted sales and high shipping. The solution is to raise the price reasonably or change the free shipping condition, not to drop the product.

### Scenario 2: A product that sells little but earns well

A product that sells in small numbers has a very high margin. Once the report shows this, the product gets more visibility and advertising; as its sales rise, total profit goes up.

### Scenario 3: Channel comparison

The same product is sold both on your own site and on a marketplace. The channel-level report shows that sales on the marketplace are high but net profit is low. Price or campaign strategy is then separated by channel.

## What Are the Common Mistakes in a Profit and Loss Report?

The most common mistakes are entering cost incompletely and looking only at gross profit. Both make profit look higher than it really is.

| Mistake | Consequence | Solution |
| --- | --- | --- |
| Not entering the purchase cost | Revenue looks like profit | Make cost mandatory on the product card |
| Looking only at gross profit | Commission and shipping stay invisible | Calculate net profit too |
| Ignoring returns | Profit looks higher than it is | Count returns and cancellations as a reduction in revenue |
| Outdated cost | The margin is calculated wrongly | Update the card when cost changes |
| Not separating channels | You cannot see which channel earns money | Get a report by channel |
| Reviewing the report only at year-end | A decision that comes too late | Review it regularly every month |

## How Do You Prepare Data for the Report?

A report is only as accurate as the data that feeds it. A few preparations made before the first report make every later report reliable.

1. **Complete the product cards.** Make sure every product has its purchase price, barcode and category entered.
2. **Define channel expenses.** Record commission rates, payment fees and shipping agreements.
3. **Organize discount records.** Make it possible to trace which order each coupon and campaign was applied to.
4. **Connect the returns process.** Make sure returns and cancellations are processed in the system.
5. **Run a test report.** Calculate a small period by hand and compare it with the report result; if there is a difference, find the cause.

## How Is the Profit and Loss Report Used in a Team Meeting?

The report should not be a table that only the manager looks at; it should be a shared basis for decisions among purchasing, marketing and operations. A short monthly meeting that reads the report through three questions is enough.

- **Which products earned money?** The purchasing team plans stock and supply accordingly.
- **Which channels and campaigns fell short?** The marketing team shifts the budget accordingly.
- **Which expense is higher than expected?** The operations team reviews shipping, packaging and the returns process.

At the end of the meeting, choose only three actions and write down who is responsible; too many actions means none of them gets done.

## How Does a Small Seller Track Profit Without a Report?

If you do not yet have a reporting system, you can start with a simple spreadsheet. Open columns for each product's selling price, purchase cost, commission, shipping and discount, calculate net profit and margin, then add the number of units sold to find total profit.

- Put the products in the rows and the cost items in the columns.
- Calculate net profit with a formula; figures typed by hand introduce errors.
- Update the sheet with sales data once a month.
- As the number of products grows, maintaining the sheet by hand becomes harder; at that point a report that calculates profit automatically from orders saves time.

The spreadsheet method is enough to get started, but it does not capture the real discounts, returns and changing costs on orders. As your order count grows, moving to an automatic report gains you both time and accuracy.

## Profit and Loss Report Checklist

1. Has the purchase cost of every product been entered?
2. Is cost calculated using the value at the time of the order?
3. Are discounts and coupons deducted from revenue?
4. Have commission, payment fees and shipping been taken into account?
5. Are returns and cancellations reflected in the report?
6. Can you view it by product, channel and period?
7. Are products with a missing purchase price flagged?
8. Is the report reviewed every month?
9. Does at least one decision come out of the report?
10. Are the official accounting records consistent with your accountant?

## How Do You Get a Profit and Loss Report in Faprika?

The Profit and Loss Report within Faprika's order reports compares each product sold with its purchase price at the time of the order. Sales, cost, gross profit and net profit after discounts are shown side by side.

- **Daily chart:** The course of your profit by day is visible in a single chart.
- **Profit and margin by product:** Which product earns money can be read at a glance.
- **Missing purchase price warning:** The report flags products whose purchase price has not been entered.
- **Cost at the time of the order:** The calculation uses the purchase price at the moment the order was placed.

For the scope of the report and the availability of features by plan, see the comparison on the [e-commerce plans](https://www.faprika.com/en/pricing) page. To work out profit before putting a product on sale, our [free calculation tools](https://www.faprika.com/en/tools) will also help.

## Summary: Five Key Ideas in the Profit and Loss Report

The purpose of a profit and loss report is to make decisions easier, so keeping a few key ideas in mind is enough. After setting up the report, looking at the same five questions every month sets the direction of the business.

1. Look at net profit more than at revenue.
2. Calculate cost completely and using the value at the time of the order.
3. Drill down by product and channel.
4. Take discounts, commission, shipping and returns into account.
5. Come away with at least one decision from the report every month.

Start small with the process: calculating the profit of your ten best-selling products and fixing the surprising findings gives faster results than trying to calculate the entire catalog perfectly.

## Frequently Asked Questions

## Frequently Asked Questions (FAQ)

**What is a profit and loss report in e-commerce?**

It is a report that shows what the business earned by comparing the revenue, cost and expenses of sales in a given period. Being able to drill down by product, order and channel is what makes it valuable for management decisions.

**What is the difference between gross profit and net profit?**

Gross profit is found by subtracting the product cost from the selling price. Net profit is what remains after discounts, commission, payment deductions, shipping and other expenses are also subtracted from gross profit.

**How is profit margin calculated?**

It is calculated by dividing net profit by the selling price and multiplying by one hundred. For example, if 15 units of net profit remain from 100 units of sales, the profit margin is 15 percent.

**How does a product with no purchase price entered show up in the report?**

If no cost is entered, the product shows its entire revenue as profit and the report looks better than reality. That is why products with a missing purchase price must be flagged and completed.

**Why does the cost at the time of the order matter?**

The purchase price changes over time. If you calculate an old sale with today's cost, the profit comes out wrong; the cost at the time of the order keeps the profit of past periods correct.

**How often should you look at the profit and loss report?**

The daily report is for catching deviations, the weekly report for seeing the trend, and the monthly report for deciding on prices and products. Waiting until year end delays the decision.

**Where is the profit and loss report in Faprika?**

In Faprika, the order reports include a Profit and Loss Report; it shows sales, cost, gross profit and net profit after discounts, with a daily chart and margin by product, and it flags products with a missing purchase price.

**Does it replace the official profit and loss statement?**

No. This is a management report and is intended for sales decisions. Official statements are prepared in accordance with legislation; consult your certified accountant on this matter.

**What data is needed for a profit and loss report?**

You need the purchase cost of products, selling prices, discount records, channel commissions, payment deductions, shipping costs and return information. If any of these is missing, the report shows profit differently from reality.

**Why does profit by product matter?**

Because the best-selling product may not be the one that earns the most. Profit and margin by product show which product to allocate stock, advertising and visibility to, and which one needs its price corrected.

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