How should a board measure ecommerce profitability?
Answer: Revenue growth is not enough. Boards should evaluate ecommerce after marketplace fees, fulfillment, advertising, returns, discounts, customer-service costs and the working capital required to support inventory. A channel can grow quickly while contribution deteriorates or cash consumption rises. The relevant question is whether incremental ecommerce revenue produces attractive incremental economics and strengthens the business. If growth requires ever more paid demand, inventory or platform dependency, reported revenue can overstate the value being created.
Why this matters
Revenue is easy to celebrate and easy to misread. Buyers and sponsors ultimately care about earnings quality, cash conversion, resilience and transferability.
What the board should examine
- Contribution margin by channel
- Advertising as a percentage of revenue and contribution
- Fulfillment, returns and marketplace fees
- Inventory turns and cash conversion
- Incremental margin on new growth
What good looks like
Management can reconcile revenue growth to contribution and cash generation, explain the economics of each material channel, and show that growth is not being purchased at declining returns.
Related questions
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