The five places ecommerce profit dies
If you've ever wondered why a 'great' month felt broke at month-end, the answer is almost always one of these five.
- Sales tax / VAT collected counted as revenue (it isn't — it's a liability).
- Returns and refunds not modelled (5–20% in apparel, 2–8% in CPG).
- Shipping costs not netted against customer-paid shipping.
- Blended CAC drift as you scale (early winners stop scaling, payback gets longer).
- Inventory tied up in slow-moving SKUs you keep reordering on autopilot.
What healthy DTC margin actually looks like
Gross margin should be 30–40% as a floor for a paid-traffic brand. EBITDA margin lands at 8–15% once ad spend, opex, and returns are honest. Anything north of 15% net usually means a strong organic engine, repeat purchase, or a category insulated from paid competition.
Amazon FBA: the fees that actually matter
FBA's referral fee (usually 15%) is just the start. Fulfillment fees scale with size and weight, storage fees punish slow-movers (especially Q4), and returns processing eats the bottom line in apparel. Run the FBA calculator before you place a PO, not after.
Sales tax across states isn't optional
Once you cross $100k revenue or 200 transactions in a state, you have economic nexus and must collect, file, and remit. Shopify Tax helps with calculation but does not register or file for you.
Channel economics: Shopify vs Amazon FBA
| Dimension | Shopify (DTC) | Amazon FBA | |
|---|---|---|---|
| Platform fee | ~3.4% + processing | 15% referral + FBA fees | |
| Customer relationship | You own it | Amazon owns it | |
| Brand control | Total | Limited | |
| Traffic source | Paid + email + organic | Amazon search | |
| Typical net margin | 8–15% | 5–12% | |
| Cash flow | Daily payouts | Bi-weekly disbursement, holds common |
Things people ask
What's a healthy Shopify conversion rate?+
Median Shopify conversion is around 1.4–2%. Top quartile sits at 3–5% depending on category. Apparel and home tend to convert lower, supplements and beauty higher.
How much should I spend on ads as a % of revenue?+
DTC brands at scale typically keep blended ad spend under 25–30% of revenue. Early stage you'll often spend 40–50% to find your winning creative and audience.
Do I owe sales tax on Shopify orders?+
Yes, in any state where you have economic nexus (typically $100k revenue or 200 transactions). You must register, collect, file, and remit — Shopify only helps calculate.
Is Amazon FBA still profitable in 2026?+
Yes for differentiated products with real margin. Generic 'reseller' arbitrage is largely over. Use the FBA profit calculator to model fees BEFORE you place a PO.