From the getgo, Shopify will track the revenue of your store. If you look at your analytics, you'll see this and can organize by week, month, year, etc. This is great but it's not really telling you what you're truly making. You might have made a certain amount of revenue this month, but what are you bringing home? That's where profit-tracking comes in.
So what's the point of profit tracking?
You want to understand how much you're making on each item after costs. This is especially important when you're determining promotions and sales because it gives you a better idea of what you can truly afford to markdown. If you're already making only a $5 profit on an item, you don't want to offer a 20% discount on a $25 item, because you'll end up breaking even. Truly, you won't necessarily be breaking even, you'll be in the negative because you're not yet factoring in other costs (like software, marketing, Shopify fees, etc.). Understanding your per-item profit will help you run better sales, create bundles of high-profit and lower-profit items to improve margins, and overall, make more money!
How do you start tracking your profits?
In order to track your profits in Shopify, you'll need to go into your product listings and enter your cost per item. I'll outline how to do this below, but let me first tell you the things that you should include in this cost.
You have two options here:
Your first option is definitely the more simple route and if you're limited on time or just want to try this method out, I'd recommend starting here. But typically, I'd only recommend you use this method if you plan to use a separate spreadsheet for tracking other costs. You could choose to simply put the cost of the actual item (i.e. what you paid the wholesaler). So let's say you have a listing for a black blazer you bought wholesale for $21.50 per item, and you're selling it for $39.00. Your cost per item here would be $21.50. So, theoretically, you'd be making $17.50 in profit on each blazer sold. This will help you get a better understanding of your profit, but it doesn't give you a full picture of what you truly end up with as far as profit.
Your second option, which will give you a clearer picture on per-item costs and take-home profit - is to add up all of your item-related expenses and list that as the cost per item. For example, you bought the blazers for $21.50 per item, but you also spend $1.20 on packaging it, $.30 on the business card you put in the package, and $.50 for the sticker you use to seal the tissue paper. This means your total cost is actually $23.50 for this item meaning your profit for each blazer is $15.50. It may seem like a small discrepancy from the above method - just a few dollars - but imagine if you sold 20 blazers over the course of the year, that's a $40 difference. Now multiply that by all of your products in your store and you could have a discrepancy in profits of hundreds of dollars that you're not planning on. I still recommend you use a spreadsheet for tracking your other, non-item related costs (like marketing, ads, and software), but if you have a cost that can be divided up by item, I would put it in the backend of your Shopify so you can truly see how much you're making on each product.
Please note these were taken directly from Shopify for the most accuracy:
In your Shopify admin, click Products.
Click the name of a product to edit it.
In the Pricing section, add a dollar value in the Cost per item field. The cost per item is how much it costs you for the product or variant. For example, if you resell a product, then you can enter the price that you paid the manufacturer, excluding taxes, shipping, or other costs. If you create the product yourself, then you can enter a value that is based on your labor and material costs.
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