Where Ecommerce Margins Quietly Disappear

Revenue is up. Orders are up. By most measures, the business is growing. But when you look at the bottom line, the needle barely moved. Where did the profit go?

Margin erosion rarely happens in one dramatic moment. It happens slowly, in small increments, across dozens of decisions that each seemed reasonable at the time.

The Usual Suspects

Discounting is the most obvious culprit. That 20% off sale boosted revenue, but it also trained customers to wait for deals. Now your full-price conversion rate is declining, and you need more promotions to hit the same numbers.

Free shipping thresholds that are set too low. If your average order is $80 and free shipping kicks in at $50, you are subsidizing shipping on orders that would have happened anyway.

Returns that are too easy. Customer-friendly return policies are important, but frictionless returns also attract customers who never intended to keep what they ordered. Serial returners are a hidden margin drain.

The Less Obvious Ones

Payment processing fees that crept up over time. When was the last time you negotiated your rates or compared alternatives?

Fulfillment costs that scale faster than revenue. As you add products, variants, and shipping options, picking and packing becomes more complex and more expensive per order.

Customer acquisition costs that rise faster than lifetime value. You are paying more to acquire customers who spend less and return less often.

The Measurement Problem

Most operators know their overall margin, but few can trace it back to specific drivers. When margin declines, they cannot pinpoint whether it was discounting, shipping, returns, or something else entirely.

This is a systems problem. Without clear visibility into margin by channel, by customer segment, by product category, you are flying blind. Understanding how the profit formula works helps identify which metrics matter most.

The Recovery Path

Start by building margin visibility. Break down your P&L by the dimensions that matter: channel, product, customer cohort. Identify where margin is strong and where it is leaking.

Then prioritize the biggest leaks. Usually, a small number of issues account for most of the erosion. Fix those first.

Finally, build margin thinking into decisions. Before launching that promotion or adding that feature, ask: what is this going to do to our margin? Make the tradeoffs explicit rather than discovering them later. A clear growth strategy helps protect margins while scaling.