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It is the most common trap in e commerce: staring at the Shopify dashboard, watching the sales figures climb, and assuming everything is fine.
You see the revenue number. It looks healthy. But when you check your actual bank balance at the end of the month, the cash isn’t there.
As a specialist ecommerce accounting firm, we see this scenario constantly. Founders often confuse turnover with profit. They scale their ad spend based on top-line revenue, only to realise they have been operating at a loss for months.
Real profitability isn’t found on your Shopify dashboard. It is found in the reconciliation work—the boring, gritty details of accounts shopify sellers often overlook.
Here is how to calculate if your Shopify store is actually making money, and where the hidden leaks usually are.
Before we dive into maths, we need to define the terms clearly.
Revenue (Gross Sales) is the total amount of money your customers have paid you. Net Profit is what is left after you have paid for the product, the shipping, the platform fees, the marketing, and the tax man.
If you are VAT registered in the UK, 1/6th of your gross sales figure doesn't belong to you—it belongs to HMRC.
Many new sellers look at a £120 sale and think they have £120 to play with. In reality, you have £100. The £20 VAT must be stripped out immediately before you calculate any margins. If you are basing your profitability on gross figures including VAT, your data is wrong from day one.
Most business owners calculate COGS simply as the unit price they pay their supplier. This is a mistake that leads to inflated profit estimates.
To get an accurate picture, your COGS must be the Landed Cost.
If you don't factor in freight and duty, your margin analysis is effectively useless.
If you are doing more than 50 orders a month, you cannot rely on manual spreadsheets. This is where accounting middleware comes in.
For standard Shopify stores and Amazon FBA sellers, Link My books is the gold standard. Link My books accounting software sits between your sales channel (Shopify) and your accounting software (Xero).
It doesn't just dump individual orders into Xero (which clogs up the system). Instead, it pulls a settlement summary that matches the payout from Shopify Payments perfectly. This separates your gross sales, shipping income, refunds, and fees automatically.
When clients ask about Link My books pricing, I ask them how much their time is worth. Reconciling Shopify payouts manually can take hours every month and is prone to human error. Link My books automates the "grunt work" so you can see your true numbers daily.
However, a word of warning for the influencers and social commerce brands we work with. While Link My books is brilliant for standard ecommerce, the integration software for creator and affiliate income (e.g., TikTok Shop affiliate payouts) largely doesn't exist yet or is very immature.
This is where having a human expert matters. We have to manually build the bridges that software hasn't caught up with yet to ensure your affiliate revenue is tracked just as accurately as your direct sales.
Gross profit is what you make on the product. Net profit is what you make on the business. The difference between the two is your Operating Expenses (OpEx).
In the Shopify ecosystem, "death by a thousand apps" is a real risk.
You need to audit these lines monthly. If an expense doesn't directly contribute to sales or compliance, cut it.
This is where most Shopify stores live or die.
You might see a ROAS (Return on Ad Spend) of 4.0 in your Facebook or TikTok ads manager and think you are winning. But does a 4.0 ROAS actually yield a profit?
Let’s look at the maths:
If your CPA (Cost Per Acquisition) on Facebook is £25, you are losing money on every single sale, despite what the "ROAS" says.
We encourage our clients to look at MER (Marketing Efficiency Ratio) rather than just platform-specific ROAS. MER looks at total revenue divided by total ad spend across all channels. It gives you the "macro" view of your profitability.
You can run a Shopify store using spreadsheets when you are starting out. But once you hit consistent daily sales, the complexity of VAT, international tax, and multi-channel inventory makes manual accounting dangerous.
If you are looking for the best Shopify accountants who understand the nuances of modern social commerce—from TikTok Shop to D2C—you need a partner who looks beyond the tax return.
We don't just file numbers; we help you understand them. We ensure your tech stack (like Link My books and Xero) is set up correctly, and we handle the complex creator income streams that software can't handle yet.
Ready to see if you are actually profitable? If you are looking for the Best ecommerce accountant uk sellers trust, get in touch with Social Commerce Accountants today. Let’s turn your vanity metrics into sanity metrics.
Sam Hoye is the Co-Founder and Managing Director of Social Commerce Accountants, a specialist firm dedicated to helping eCommerce brands, influencers, and online sellers navigate their finances. With over 15 years of experience in accounting and business strategy, Sam is known for ditching traditional jargon in favor of clear, no-nonsense advice tailored to platforms like TikTok Shop, Amazon FBA, and Shopify. He specializes in integrating modern accounting tech stacks to streamline compliance and cash flow, allowing founders to focus on scaling their businesses. Through his writing, Sam shares actionable insights on everything from VAT compliance to profitability strategies, helping digital entrepreneurs turn complex numbers into a roadmap for growth.
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