E-Commerce Profit Glossary
Plain-English definitions for every term Shopify merchants need to know about profit, fees, and margins.
36 terms · Updated regularly
Profit & Revenue
Revenue (Gross Revenue)
All the money that came in from sales. This is the big number Shopify puts at the top of your dashboard — and it's misleading. Revenue is NOT profit. It's just the top line before anything gets subtracted.
Gross Profit
Revenue minus what you paid for the products. That's it — no payment fees, no refunds, no apps. Gross profit tells you if your pricing makes sense before overhead eats into it.
Gross Margin
Gross profit as a percentage of revenue. Tells you how much of each sale is left after paying for the product itself. For most Shopify stores, a healthy gross margin sits somewhere between 40% and 70%.
Net Profit
What's left after every single expense is paid — products, refunds, payment fees, shipping, Shopify plan, apps, taxes. This is the number that matters. If it's negative, you're losing money regardless of what your revenue looks like.
Net Margin
The percentage of revenue you actually walk away with after every bill is paid. Most Shopify stores land somewhere between 10% and 20%. If you're below 10%, you're working hard but not keeping much.
Profit Margin
How much of each dollar you actually keep after paying for everything. Revenue minus all costs, divided by revenue. A 30% margin means you keep $0.30 of every dollar that comes in.
Profit Leak
Money vanishing from your P&L that you never see coming. Shipping subsidies you didn't track. Payment fees on refunds that don't come back. Apps you stopped using but forgot to cancel. Returns you processed without restocking fees. Small drips that add up to a flood.
Markup vs Margin
These get mixed up constantly, and it costs merchants real money. Markup is how much you add to cost (profit ÷ cost). Margin is how much of the selling price is profit (profit ÷ price). A 50% markup only gives you a 33% margin. They're not the same.
Costs & Fees
COGS (Cost of Goods Sold)
What you paid for the product you're selling. That's the purchase price from your supplier, plus inbound freight, plus whatever packaging you use per unit. It does not include your Shopify plan, ads, or software subscriptions.
Variable Costs
Costs that go up when you sell more. Products, shipping, payment fees, packaging — every unit you ship has these attached. You can't avoid them, but you can shop for better rates on shipping and negotiate with suppliers.
Fixed Costs
The bills that show up whether you sell 0 orders or 1,000. Shopify plan, app subscriptions, domain, warehouse rent, staff salaries. You pay these no matter what. The trick is keeping them lean so break-even comes sooner.
Payment Processing Fees
The cut Shopify Payments (or Stripe, PayPal) takes on every transaction. Usually 2.9% + $0.30 online. Here's the part that stings: when you issue a refund, you don't get this fee back. It's gone forever.
Shopify Plan Cost
Your monthly Shopify subscription: $39 (Basic), $105 (Shopify), or $399 (Advanced). Higher plans come with lower payment processing rates. Whether upgrading saves you money depends entirely on your sales volume.
Shopify App Costs
The monthly fees for all those apps in your Shopify admin. The typical merchant runs 6-8 apps and spends $50-300/month. It creeps up — $9 here, $19 there — until you're paying $150/month for tools you barely use.
Discount Rate (Sales Discount)
How much revenue you're giving away through coupon codes, flash sales, and promotions. Discounts move units, but they punch straight through your margin. A 20% off sale on a 30% margin product leaves you with 10% — barely profitable after fees.
Refunds & Returns
Refund Rate
How much of your revenue you're handing back to customers. Divide total refunds by total revenue. Anything above 5% means something's wrong — bad product photos, wrong sizing, slow shipping, or misleading descriptions.
Refund Cost (Total Refund Cost)
The real price of a refund is way more than the amount you hand back. You lose the payment processing fee (it's not refunded to you), you pay return shipping, and someone has to inspect and restock the item. The actual cost can be 20-30% more than the refund amount.
Return Rate
How many orders come back to you. Not the same as refund rate — a return might become an exchange or store credit instead of a cash refund. E-commerce averages 20-30%. Fashion? Often over 30%.
Restocking Cost
The labor and materials to make a returned item sellable again. Someone opens the package, inspects it, folds or repackages it, relabels it, and puts it back on the shelf. That time isn't free, and most merchants never account for it.
Refund Abuse
Some customers game your return policy. They wear something for the weekend and return it. They claim defects that don't exist. They swap in a cheaper version. It happens more than you think — the industry loses $24 billion a year to it.
Return Shipping Cost
What you pay to get the product back when someone returns it. A return label typically runs $5-12, and you almost never recover this cost. It's a hidden surcharge on top of the refund and the non-refundable payment fee.
Chargebacks
Chargeback
When a customer calls their bank and says "I didn't authorize this" or "I never got my stuff." The bank yanks the money back from you. Unlike a refund — where you decide — chargebacks happen without your consent, and you get hit with a $15-100 fee on top of losing the sale.
Chargeback Rate
Chargebacks divided by total transactions. Go above 0.9% and Shopify Payments will start warning you. Go above 1% and you could lose your payment processing entirely. That's why even a handful of disputes can be dangerous.
Chargeback Fee
The $15-100 penalty your payment processor slaps on every chargeback, whether you fight it or not. Even if you prove the customer is lying, you still eat this fee. It's the reason preventing chargebacks matters more than fighting them.
Chargeback Representment
Fighting back. You gather evidence — delivery confirmation, IP logs, emails — and submit it to the customer's bank to prove the charge was legit. If you win, you get the money back (minus the dispute fee, which you never get back).
Friendly Fraud
The customer got their order just fine — then tells their bank they didn't. Maybe they say "item not received" or "I didn't authorize this." It's theft, plain and simple, and it makes up 60-80% of all chargebacks. The "friendly" part is sarcastic.
Shipping
Shipping Gap
The difference between what you charge for shipping and what the carrier actually charges you. Most merchants discover they're subsidizing shipping out of their product margin — a negative gap that silently bleeds profit.
Shipping Margin
The gap between what customers pay for shipping and what it actually costs you. Positive = you make money on shipping. Negative = you're bleeding margin on every box you send out. Most merchants are negative and don't realize it.
Free Shipping Threshold
"Free shipping on orders over $75!" — you've seen it everywhere. It works great for boosting AOV, but you're still paying the carrier. "Free shipping" really means "I'll eat the shipping cost and hope the larger order covers it."
Dimensional Weight (DIM Weight)
Carriers like UPS and FedEx don't just charge by weight. They charge by size too. Ship something light in a big box and they'll bill you as if it weighs way more than it does. This catches a lot of merchants off guard.
Analytics & Growth
Average Order Value (AOV)
Total revenue divided by total orders. It tells you how much the typical customer spends in a single checkout. Raising AOV by even $5 can add thousands to your monthly profit without spending more on ads.
Break-Even Point
How many units (or how much revenue) you need to sell before you've covered all your costs. Before break-even, every sale is just paying off expenses. After break-even, you're actually making money.
Contribution Margin
How much each sale chips away at your fixed costs. Selling price minus the variable cost per unit. If your contribution margin is $25, every sale puts $25 toward your $3,000/month in fixed overhead.
Customer Acquisition Cost (CAC)
How much you spend to get one new customer through the door. Ads, promotions, influencer fees — divide your total marketing spend by new customers acquired. If your profit per customer is less than your CAC, you're paying to give products away.
Customer Lifetime Value (CLV)
The total profit one customer generates over the entire time they shop with you. If CLV is $72 and CAC is $40, you're in good shape — each customer makes you $32 net. If CLV is lower than CAC, no amount of marketing will save you.
Profit Reality Score
A single number from 0-100 that tells you how healthy your store's profit really is. It factors in your margin, refund rate, and COGS ratio. Think of it as a credit score for your store's profitability.
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