A recurring conversation in Australian ecommerce: “We run at 40% margin but there’s never any money.”
There is never any money because it is not a 40% margin. It is a 40% margin on an incomplete cost base.
What most operators count
Product cost from the supplier invoice. Sometimes freight. That is it.
What they should count
| Component | Typical | Usually counted? |
|---|---|---|
| Product cost (ex works) | Base | Yes |
| Inbound freight | 4–12% of product | Sometimes |
| Duty and import charges | 0–10% | Sometimes |
| FX movement | 2–5% | Rarely |
| Receiving and put-away labour | 1–3% | Almost never |
| Pick, pack and packaging | $3–$8 per order | Rarely |
| Outbound shipping | $8–$16 per order | Sometimes |
| Payment processing | 1.5–2.9% + 30c | Sometimes |
| Platform / marketplace fees | 2–15% | Sometimes |
| Returns | See below | Almost never |
| Customer acquisition cost | Varies enormously | Separately, if at all |
Returns: the line that eats the category
A return is not a reversed sale. It costs you:
- Outbound shipping already spent
- Return shipping, if you offer it free
- Handling and inspection labour
- Restocking, or a markdown if it cannot be resold
- Payment processing frequently not refunded
A single return can cost more than the gross profit on two sales.
At a 12% return rate on a category with a nominal 40% margin, returns alone can remove a third to a half of the category’s actual margin. Apparel and footwear run considerably higher.
Cost returns explicitly as a line. Netting them silently against revenue hides exactly the thing you need to see.
The worked example
A $90 product, sold at $150:
| Line | Amount |
|---|---|
| Revenue | $150.00 |
| Product cost | −$90.00 |
| Nominal gross margin | $60.00 (40%) |
| Inbound freight and duty | −$7.20 |
| FX movement | −$2.70 |
| Pick, pack, packaging | −$5.50 |
| Outbound shipping | −$11.00 |
| Payment processing (2.4% + 30c) | −$3.90 |
| Platform fee (3%) | −$4.50 |
| Returns allocation (12% rate) | −$6.80 |
| True contribution | $18.40 (12.3%) |
| Customer acquisition cost | −$22.00 |
| After acquisition | −$3.60 |
The 40% margin product loses $3.60 on a newly acquired customer.
It only works on repeat purchase — which makes lifetime value the whole business model, not a marketing metric.
What to do
Rebuild your COGS properly, by SKU or at least by category. Two days of work that changes every pricing, buying and advertising decision you make afterwards.
Separate new-customer economics from repeat. If new customers are acquired at a loss, you need to know the repeat rate and the time to profitability — precisely, not hopefully.
Reduce returns before you reduce cost. Better sizing guides, more photographs, clearer specifications, honest descriptions. A 3-point reduction in return rate is usually worth more than any supplier negotiation.
Charge for shipping, or build it in. Free shipping is not free. It is a discount with the least visible cost and the most goodwill, which is why it is worth having deliberately rather than by default.
Review your platform mix. A marketplace taking 15% may still be profitable on incremental volume — but only if you know the true contribution, which you cannot without the above.
Check freight and fuel. Excise returned to 53.7c/L on 3 August 2026, and carriers reprice on it. Your shipping cost assumption from last year is out of date.
The three numbers to run monthly
Once your COGS is rebuilt, three figures tell you almost everything.
Contribution margin per order. Revenue less every variable cost, before acquisition. This is what each order actually leaves behind to cover overhead and profit. If it is under about 25% of order value, your business is extremely sensitive to any increase in shipping, returns or platform fees — and those all moved this year.
Contribution margin after acquisition, split new versus repeat. Almost every Australian ecommerce business acquires at a loss and profits on repeat. That is a legitimate model, but only if you know the repeat rate and the payback period precisely. If you do not know how many months it takes to recover acquisition cost, you are running a growth business on faith.
Average order value against your shipping threshold. If free shipping starts at $100 and your AOV is $78, you are carrying full shipping cost on most orders while advertising a benefit few customers reach. Moving the threshold or the AOV — through bundling, not discounting — is frequently the fastest margin improvement available.
The pattern worth noticing
Ecommerce operators tend to optimise the visible numbers: conversion rate, traffic, average order value, ad spend.
Those are all real. But a business converting at 3.2% on a cost base it has measured wrong is optimising toward a number that does not exist.
Rebuild the cost base first. It is two days of unglamorous work, and every decision afterwards — what to stock, what to promote, what to charge, which channel to expand — is made on real information rather than a supplier invoice.
Where to go next
- Gross Margin by Service Line\n- Retail Margin Compression\n- Markdown Discipline\n- Pricing for Profit
Sources: Department of Infrastructure fuel excise fact sheet; Xero Small Business Insights Australia 2026. Cost ranges are indicative and vary enormously by category, weight and channel. General information, not financial advice.