Your advertising account knows what you paid for a click. It does not know what it cost to put an order on a customer’s doorstep. A sensible acquisition target starts with that second number.
Build an order-level cost sheet
Take a normal order after discounts. Record net revenue excluding VAT where appropriate, then list every variable cost. Include the item’s landed cost, the payment provider’s fee, pick and pack, packaging, carrier charge and any delivery income from the customer. Delivery income is revenue; deduct the carrier charge only once.
| Line | Amount |
|---|---|
| Revenue excluding 20% VAT | £50.00 |
| Landed product cost | −£23.00 |
| Payment processing | −£1.50 |
| Pick, pack and packaging | −£2.50 |
| Delivery | −£4.00 |
| Expected returns cost | −£3.00 |
| Contribution before advertising | £16.00 |
Returns belong in the model
Do not wait until a refund hits the bank before allowing for it. Use a mature order cohort whose return window has largely passed. Calculate refunded revenue and the costs you cannot recover: outbound delivery, return labels, processing and damaged stock.
If your revenue line already excludes refunded sales, do not subtract the same refund again in a returns allowance. The allowance in the example represents an estimated combined impact; replace it with a calculation that matches your reporting method.
Separate variable costs from overhead
The £16 in the example is not profit. Advertising still needs paying, and the business has fixed costs. If acquisition costs £10, only £6 remains towards salaries, subscriptions, rent, management fees and profit. Divide monthly overhead by a realistic order volume to see whether that contribution is enough.
Do not use a temporary sales spike as your permanent order-volume assumption. A quiet month can make the same cost structure uncomfortable very quickly.
Make Shopify or WooCommerce your starting point
Export orders, discounts, shipping income and refunds for the same dates. Reconcile that export with payment settlements. Then add carrier invoices and product costs. Settlements may arrive later than orders and may have fees deducted, so they are a useful reconciliation check rather than a substitute for the order ledger.
Turn the answer into a decision
Compare contribution after advertising across new and returning customers, delivery regions and product categories. A low average cost per order can still hide an unprofitable first purchase. If repeat orders justify the difference, use observed repeat behaviour and the time it takes to recover the spend.
Keep a short list of the levers you control: minimum order for free delivery, bundles, packaging, returns prevention and acquisition cost. Work on the largest avoidable cost before buying more traffic.
Examples are illustrative, not client results. VAT examples assume a VAT-registered UK business selling standard-rated goods, with recoverable input VAT excluded from costs. Check your own product and tax treatment with your accountant. UK VAT rates. Irish stores should use their applicable local VAT rate, not the UK example.
Put it into practice
Bring your store’s numbers to the conversation. We will start there.
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