Online sellers often celebrate revenue screenshots without showing the expenses required to produce those sales.
Revenue matters, but it is not the same as profit—and neither is the same as cash available in your bank account.
Four numbers every seller should understand
Revenue
Revenue is the total amount generated from sales before subtracting business costs, refunds, fees, and taxes.
Cost of goods sold
For a physical product, this may include the direct cost of buying or making the item and certain costs required to prepare it for sale.
Gross profit
Gross profit is generally what remains after subtracting the direct cost of the goods sold from revenue.
Net profit
Net profit is what remains after subtracting the other business expenses required to operate.
The exact accounting and tax treatment can vary, so use qualified professional help when necessary.
A simple $50 sale example
| Item | Amount |
|---|---|
| Customer payment | $50.00 |
| Product cost | -$18.00 |
| Marketplace and payment fees | -$6.00 |
| Packaging | -$2.00 |
| Shipping paid by seller | -$8.00 |
| Advertising allocation | -$5.00 |
| Amount remaining before other expenses and taxes | $11.00 |
The seller received $50 in revenue but did not earn $50 in profit.
Expenses online sellers commonly miss
- Marketplace commissions
- Payment-processing fees
- Listing fees
- Shipping labels
- Boxes, mailers, tape, and labels
- Inbound freight
- Storage
- Advertising
- Returns and refunds
- Chargebacks
- Damaged or lost inventory
- Software subscriptions
- Website hosting
- Contractor or employee costs
- Taxes and professional services
Digital products have expenses too
A digital file may not require inventory, but it can still involve:
- Platform and transaction fees
- Design, editing, or recording software
- Advertising
- Email delivery
- Refunds and chargebacks
- Customer support
- Updates and hosting
- The creator’s time
The margin can be attractive, but “no physical inventory” does not mean “no cost.”
Affiliate commissions are revenue—not pure profit
Affiliate marketers may pay for:
- Hosting and domains
- Email services
- Video or design tools
- Products purchased for review
- Contractors
- Advertising
- Taxes
A commission screenshot does not show the cost of producing the traffic and content behind it.
Profit and cash flow are not identical
A business can appear profitable on paper while experiencing a cash shortage.
For example:
- You buy inventory today but do not sell it for three months.
- A marketplace holds payments temporarily.
- Customers pay invoices after 30 days.
- Annual software renewals occur before a strong sales month.
- Refunds arrive after the original revenue was counted.
Track when money enters and leaves—not only the total for the year.
Understand fixed and variable costs
Fixed costs
Fixed costs usually do not change directly with each sale.
- Website hosting
- Monthly software
- Storage rent
- Insurance
- Basic professional services
Variable costs
Variable costs increase or decrease as sales change.
- Product cost
- Transaction fees
- Packaging
- Shipping
- Sales commissions
Knowing the difference helps you estimate how many sales are needed to cover costs.
Calculate a basic break-even point
For a single product, one basic approach is:
Example:
- Monthly fixed costs: $300
- Selling price: $40
- Variable cost per sale: $25
- Contribution per sale: $15
- Approximate break-even volume: 20 sales
This is a simplified planning calculation. Real businesses may have several products, taxes, timing differences, returns, and changing costs.
Keep records from the first sale
A useful recordkeeping system should clearly show income and expenses.
Keep documents such as:
- Sales reports
- Invoices
- Receipts
- Marketplace statements
- Bank and payment-processor records
- Shipping records
- Refund and chargeback information
- Inventory purchase documents
Separate business and personal activity as early as practical. Mixing everything together makes it harder to understand whether the business is working.
A simple monthly seller review
At the end of each month, record:
- Total sales revenue
- Refunds and chargebacks
- Product or production costs
- Marketplace and payment fees
- Shipping and packaging
- Advertising
- Software and services
- Other operating expenses
- Money still owed to you
- Cash available after payments
Watch profit by product—not only by store
One profitable product can hide losses from another. Track enough detail to identify:
- Products with high return rates
- Items that cost too much to ship
- Advertising campaigns that do not recover their cost
- Products that sell well but produce little margin
- Slow inventory tying up cash
Do not confuse busy with profitable
More orders can create more work without creating more profit.
Your first-step tracking sheet
Create columns for:
- Date
- Order or invoice number
- Gross sale
- Refund
- Direct product cost
- Platform and payment fees
- Shipping and packaging
- Advertising
- Other expenses
- Estimated amount remaining
Sources and further reading
The practical guidance in this article is supported by the following government and consumer-education resources:
Educational information only. This article is not legal, tax, financial, investment, employment, or professional business advice.