Marketing in a Minute – Episode 7 | Ahmed Moaaz

A large sales figure can hide a small profit, or even a loss. What matters is the amount left after product costs, advertising, shipping and fees.

Why are sales not the same as profit?

Between the impressive sales figure in your dashboard and the money you actually keep sits a long list of deductions. A store owner celebrating EGP 100,000 in sales may discover at the end of the month that the business earned less than one employee, or lost money altogether.

The basic calculation is: Profit = sales − cost of goods − advertising − shipping − payment fees − returns − operating expenses. Each item takes part of the total before you see what remains. Keep the accounting treatment consistent so returns or fees are not deducted twice.

A complete numerical example

A store recorded EGP 100,000 in sales last month. Here is a simplified breakdown:

• Cost of goods sold: EGP 45,000, leaving an initial gross margin of 55%.
• Paid advertising: EGP 20,000.
• Shipping and delivery: EGP 8,000.
• Payment gateway fees: EGP 2,500.
• Returns and uncollected orders: EGP 7,000.
• Operating expenses, including packaging, salaries and software subscriptions: EGP 10,000.

Total deductions: EGP 92,500. Actual profit: just EGP 7,500 from EGP 100,000 in sales, a net margin of 7.5%. A small rise in returns or advertising costs could turn that month into a loss, even though sales look excellent.

Three costs store owners often forget

First, advertising cost per order. Many people say “the campaign generated EGP 50,000” without deducting the EGP 20,000 spent to generate it. The first figure appears prominently in platform dashboards; the second may sit in a separate report.

Second, returns and uncollected orders. In our market, a shipped order is not necessarily a completed sale. An order returned by the customer can cost outward and return shipping, packaging and staff time without generating revenue. Ignoring this makes the figures look better than reality. A later episode covers RTO in detail.

Third, small costs that add up. Payment gateway commissions, transfer fees, packaging, store-app subscriptions and coupon discounts can look minor individually. Together, they can consume your margin before you notice. This is why some stores sell a great deal but earn very little.

Gross margin versus net margin

Gross margin is what remains after deducting the cost of goods alone. In our example, it was 55%. That can be reassuring, but it hides all the costs that come afterwards. Net margin is what remains after all the deductions in this simplified example: only 7.5%. The gap between the two is where many store problems appear, including inefficient advertising, expensive shipping, high returns and excessive operating costs.

When someone says “my margin is 60%”, ask whether they mean gross or net. Gross margin helps assess pricing against product cost. Net margin helps assess how the overall business is working. You need both, and major growth decisions need a clear view of net profitability rather than revenue alone.

How can you calculate actual profit simply?

At the end of each month, open a simple spreadsheet with five lines: sales; cost of goods; advertising; shipping, payment fees and returns; and operations. Subtract each cost group from sales. The remaining figure is profit for that calculation. Divide it by sales to find net margin and track it month by month.

The direction matters more than a single month’s result. A margin improving each month suggests the business is learning. A margin gradually shrinking may mean growth is being funded from your own pocket without you noticing.

A useful practical warning is that a net margin below 10% leaves limited room for surprises. A wave of returns or an expensive advertising season can turn a profitable month into a loss. A stronger margin gives the business a buffer.

Common mistakes

The most dangerous mistake is deciding to expand on the basis of sales rather than profit. “I will double the advertising budget because sales are growing” can be the wrong decision if profitability is shrinking. Sales may double while losses grow alongside them. Expansion needs a clear understanding of margins, not just revenue volume.

Another mistake is confusing cash flow and profit. Goods in transit and funds held by payment gateways are not the same as cash freely available to spend. Complete the transaction cycle and account for returns when assessing what the business keeps.

Frequently asked questions about profit and sales

What is a healthy net margin for e-commerce? It varies widely by sector. A broad reference range used in this article is 10% to 25% after costs, but it is not a universal target. More important is the trend: a margin gradually improving is encouraging; one steadily eroding is an early warning.

Should I cut advertising to raise profit? Not automatically. If advertising brings in customers at a positive margin, cutting it can reduce profit too. Improve efficiency first and reduce spend where it generates genuinely loss-making orders.

What if I discover that I am losing money? Do not panic. Many owners face this moment when they calculate properly for the first time. Start with the two largest cost items, usually goods and advertising, and investigate whether each can improve by 10%. The effect on the final profit can be much larger than expected.

Summary

Sales can be a source of pride, but profit keeps a business alive. Calculate it every month with a simple five-line sheet. Watch net margin as closely as sales, and base expansion on profitable growth rather than volume alone. That is the difference between a business growing with confidence and one losing money without realizing it.

Related reading: Episode 6: Average Order Value.

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