E-commerce profitability: diagnose the cost of each order

Reconcile the order population

Export order and line identifiers, creation time, fulfilment location, channel, delivery method, payment status and final quantities. Join refunds and cancellations to the original order. Keep placed, paid, dispatched and delivered orders as separate counts. A partially fulfilled basket needs its final sales value and actual handling cost. Reconcile the total to finance for the same period, including orders created before the period and completed inside it. Choose one recognition rule and record it beside the report so that a change in reporting does not look like a change in performance.

• Retain cancelled orders when calculating the work generated by demand.

Build an explicit contribution bridge

Start with merchandise revenue after discounts and refunds, using a consistent tax basis. Deduct the cost of the goods sold, payment fees, picking, packaging, delivery and other variable order costs. Add delivery charges paid by customers separately. Then show acquisition cost and the resulting contribution after acquisition. Keep fixed overhead in a separate layer. An allocated head-office cost can inform the full business plan, while a decision to accept one more delivery order needs the additional cost that order will actually create.

Read the result in money

Consider an illustrative order in currency units: goods revenue of 100, cost of goods of 60, picking and packaging of 7, payment cost of 2, delivery cost of 8 and a customer delivery charge of 3. Contribution before acquisition is 26. With acquisition of 12 it becomes 14. A further discount of 10 lowers it to 4 if the other amounts remain unchanged. This example isolates the decision: the promotion must produce enough additional contribution across the affected orders to cover its cost and any extra operating workload.

Trace picking and delivery exceptions

Observe several orders through shelf search, substitution, packing, staging and handover. Record time spent waiting for a decision as well as time spent handling goods. A missing item can trigger a phone call, a second walk through the store, a payment adjustment and a late departure. Group these costs by cause. Split delivery by zone, window, parcel count and failed attempts. A blended carrier rate conceals the expensive tail of the operation, especially when a single basket leaves two locations or requires a second visit.

Compare orders with similar service demands

Compare new and returning customers, small and large baskets, store pickup and home delivery, standard and urgent windows. Include category mix and the number of order lines: revenue alone does not explain picking effort. For repeat purchasing, compare cohorts with equal observation windows and include store purchases when customer identity permits. Calculate how many profitable repeat orders would be needed to recover an initial acquisition loss. Treat that number as a hypothesis until the cohort has had enough time to demonstrate the behaviour.

Assign changes and measure the consequences

Turn the largest recurring loss into a bounded change: a revised delivery zone, a basket threshold, a different substitution rule or a stock buffer for unreliable items. Record an owner, the affected orders, implementation cost and review date. Track contribution together with availability, cancellations and customer complaints. A tighter delivery promise may improve the margin on accepted orders while excluding valuable demand; keep the rejected demand visible. The downloadable worksheet gives each cost a definition and a source, so finance and operations can examine the same calculation.

Working files

Sources

Apply this to your business

Bring your business question and current figures. We will define the work, the data required and the decisions your team needs to make.

Continue reading