Choose the right profit level
Gross sales answer a demand question. Gross profit subtracts product cost. Contribution profit goes further by subtracting variable costs such as discounts, payment fees, shipping, packaging, COD charges, and return shipping. For day-to-day product and campaign decisions, contribution profit is often the most actionable level.
Keep fixed business costs such as salaries and rent in a separate operating view. Mixing every overhead allocation into each order can make product decisions harder to interpret.
Build the order-level equation
Start with realized item revenue after discounts. Subtract COGS, outbound shipping, packaging, payment-gateway fees, COD fees where relevant, and any return or RTO costs. Refunds and taxes should follow the accounting treatment used by the business.
Document assumptions and effective dates. A shipping rate or packaging cost that changed last month should not silently rewrite the economics of older orders.
Separate booked revenue from realized revenue
Prepaid and COD orders do not have the same collection path. For COD, an order placed is a promise to pay, not collected revenue. A conservative operating view recognizes the revenue after delivery while tracking fulfillment costs as they occur.
This distinction prevents a surge in unfulfilled COD orders from looking like profitable growth before delivery and return outcomes are known.
Use profit to change decisions
- Compare products by contribution margin, not revenue alone.
- Measure discounts after their effect on payment and fulfillment costs.
- Review COD and prepaid economics separately.
- Watch profit by delivered cohort so late RTO outcomes are visible.