Ecommerce Operating Profit specifically measures the profitability of an ecommerce business's core operations, excluding interest, taxes, and depreciation. This figure is crucial for assessing the true health of an ecommerce business, as it reflects how well the business is managing its direct expenses and overheads. It is calculated by subtracting operating expenses, such as marketing costs, shipping, and payroll, from gross profit, which is revenue after cost of goods sold (COGS).
For ecommerce businesses, operating profit is an important indicator of long-term sustainability. A strong operating profit means that the business is able to cover its fixed costs and still generate significant profit from its operations. On the other hand, a low operating profit may signal the need for cost-cutting measures or a more profitable pricing strategy. It’s a key metric for investors looking to gauge the operational efficiency of an ecommerce business.
Ecommerce Operating Profit Formula
Operating Profit = Contribution Margin - Operating Expenses
Operating profit is calculated by subtracting operation expenses from the contribution margin.