Practical Framework for Categorizing Sales Expenses into Direct and Indirect Costs

Marketplace vs. DTC Metrics: A Unified Framework

For many e-commerce founders, the financial picture is split. You see healthy top-line revenue in Shopify and receive sizable payouts from Amazon, but a critical question remains unanswered: which sales channel is actually more profitable? Pinpointing the true, all-in customer acquisition cost for each is a constant struggle, with marketplace fees, ad spend, and fulfillment costs buried in different reports. This makes it nearly impossible to allocate marketing spend confidently, as the performance metrics are not normalized to actual profit margins. The goal is not to create a perfect, audit-ready P&L in a spreadsheet. It is to build a simple, unified framework that helps you compare marketplace and DTC ecommerce metrics apples-to-apples, giving you the clarity needed to grow sustainably.

You can find more details in our hub on expense categorization.

The Goal Isn't Perfection, It's Directional Accuracy

Before diving into calculations, it is important to set a realistic goal. You do not need a perfectly precise financial model to make better decisions. The objective is directional accuracy. You need to know if your DTC channel generates more contribution margin per customer than Amazon, even if the numbers are off by a few percentage points. This pragmatic approach prevents analysis paralysis.

The reality for most pre-seed to Series B startups is that you are using tools like Shopify, Amazon Seller Central, and QuickBooks, and the data is rarely perfect. A good-enough model built in a spreadsheet that helps you decide where to spend your next marketing dollar is infinitely more valuable than a complex one that never gets finished. This framework is about creating that practical, decision-driving view for evaluating your sales channels.

Uncovering the Variable Costs in Each Channel

To compare channels, you first need to uncover all the variable costs associated with an order in each one. These costs directly reduce your profit from every sale. The pattern across e-commerce brands is consistent: DTC costs are numerous but visible, while marketplace costs are fewer but often bundled and opaque.

Direct-to-Consumer (DTC) Channel Costs (e.g., Shopify)

Your DTC costs are often broken out across different vendors, so you need to pull them together. Key variable costs include:

• Payment Processing Fees: This is the fee for using a payment gateway. For example, Stripe or Shopify Payments transaction fees are typically around 2.9% + 30¢ per transaction.
• Fulfillment Costs: If you use a third-party logistics (3PL) partner, this includes pick-and-pack fees and shipping costs.
• Packaging Costs: This covers the cost of your boxes, mailers, and any inserts.
• Software Fees: A small, pro-rated portion of tools like customer service platforms can be considered a variable cost per order.

Marketplace Channel Costs (e.g., Amazon)

Marketplace costs are often deducted before you receive your payout, which can make them harder to track. It is also worth noting that marketplaces can affect your VAT responsibilities in the UK. Common costs are:

• Referral Fees: This is the commission the marketplace takes on each sale. Amazon's Marketplace Referral Fee is often 15% but varies by product category, according to Amazon's Seller Central Fee Schedule.
• Fulfillment Fees: If you use Fulfillment by Amazon (FBA), these fees cover picking, packing, and shipping. They vary by product size and weight.
• Advertising Fees: The cost of on-platform ads, like Amazon Sponsored Products, is a key variable expense.
• Storage Fees: FBA also charges monthly and long-term storage fees for inventory held in their warehouses.

Calculating an All-In Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) measures the total cost to acquire a new customer. A common mistake is looking at total ad spend versus total customers, which creates a blended CAC that hides channel-specific performance. To truly understand ecommerce channel performance, you need to separate acquisition costs for your DTC and marketplace channels. Accounting guidance also covers when to capitalize certain acquisition costs, which you can read about in this guidance on costs of obtaining a contract.

DTC Channel CAC

On your own DTC channel, you typically have more control and better data. Your acquisition costs include:

• Ad Spend: The total amount spent on platforms like Meta, Google, and TikTok that is specifically targeted at new customers.
• Marketing Salaries & Agency Fees: A portion of salaries or retainers for the team or agency focused on new customer acquisition.

It is critical to distinguish between acquisition-focused and retention-focused marketing. The cost of an email campaign sent to your existing customer list should not be included in your CAC calculation. Tools like Triple Whale or Peel can help with this, but a disciplined approach in a spreadsheet is a great starting point.

Marketplace Channel CAC

Calculating CAC for a marketplace channel is often simpler but offers less insight. The primary driver is your ad spend on services like Amazon Sponsored Products or Walmart Connect. The main challenge is the limited data on new versus repeat customers. For this reason, many brands start by calculating CAC based on total orders, but the goal should be to estimate the portion of ad spend that is truly driving first-time purchases.

The Unified View: Contribution Margin per Channel

Now you can bring the pieces together to compare channels directly. We do this by calculating two levels of Contribution Margin (CM), a key metric for understanding profitability at the order and customer level.

• Contribution Margin 1 (CM1): This measures per-order profitability after accounting for all variable costs related to fulfilling that order. It answers the question, "How much profit do I make on each individual sale before marketing costs?"
• Contribution Margin 2 (CM2): This measures per-new-customer profitability by also subtracting the cost to acquire that customer. It answers the question, "How much profit do I make on a new customer's first order?"

The calculation flows in the following sequence:

Revenue
- Cost of Goods Sold (COGS)
----------------------------------
= Gross Margin
- Variable Order Costs (Fees, Fulfillment)
----------------------------------
= Contribution Margin 1 (CM1)
- Customer Acquisition Cost (CAC)
----------------------------------
= Contribution Margin 2 (CM2)

A Numerical Example: DTC vs. Amazon

Let’s consider a hypothetical product that sells for $100 with a COGS of $30. For both channels, the initial Gross Margin is $70.

DTC (Shopify) Channel Breakdown

Starting from a $70 Gross Margin, we subtract the variable order costs. A payment processing fee of $3.20 (2.9% + 30¢) and fulfillment and shipping costs of $12.00 leave a Contribution Margin 1 (CM1) of $54.80, or 55% of revenue. If we then subtract an example CAC of $35.00, the final Contribution Margin 2 (CM2) is $19.80.

Marketplace (Amazon) Channel Breakdown

Again starting from a $70 Gross Margin, we subtract Amazon's fees. An FBA fee of $15.00 for fulfillment and a referral fee of $15.00 (15%) result in a Contribution Margin 1 (CM1) of $40.00, or 40% of revenue. If the CAC on this channel is lower, for example $20.00, the final Contribution Margin 2 (CM2) is $20.00.

In this scenario, the DTC channel appears more profitable on a per-order basis (CM1). However, because acquiring a customer on Amazon is cheaper, the per-new-customer profitability (CM2) is nearly identical. This is the kind of insight that enables confident budget allocation.

A Pragmatic Approach to Lifetime Value (LTV)

Lifetime Value (LTV) is the total profit you expect to earn from a customer over their entire relationship with your brand. It is a critical metric for understanding the true value of your acquisition efforts, but it presents a major challenge when comparing DTC and marketplace channels.

DTC LTV

On your own platform, you have the data to measure LTV accurately. You can run a cohort analysis in Shopify or use dedicated tools to track how many customers from a specific month return to make a second, third, or fourth purchase. By tracking repeat purchase rates and average order values over time, you can build a reliable picture of your DTC customer LTV.

Marketplace LTV

This is where perfect data is impossible. Marketplaces own the customer relationship, meaning you have little to no visibility into whether a buyer is new or returning. In practice, we see that brands must take a more pragmatic approach. Instead of trying to calculate a precise marketplace LTV, you should model scenarios. Assume a low repeat purchase rate (e.g., 5%) and see how it compares to your known DTC repeat rate. The key distinction here is the value of a direct customer relationship versus a purely transactional one. Your DTC LTV is higher not just because of repeat purchases, but because you own the ability to market to that customer via email and other channels for free.

How to Implement This Framework: A 5-Step Guide

Translating this framework into action does not require a dedicated finance team. It requires a disciplined approach to organizing your data. For founders using QuickBooks in the US or Xero in the UK, this analysis typically lives in a spreadsheet that pulls data from your accounting software, your e-commerce platform, and your ad accounts.

Here are five steps to get started:

1. Map Your Variable Costs: Begin by listing every single fee and cost associated with a single order for both your DTC and marketplace channels. Get this part right first. A system for project-based expense tracking can be adapted for this.
2. Calculate CM1 per Channel: Your first goal is to understand your per-order profitability. This is often the most eye-opening metric and can reveal issues with shipping or fee structures.
3. Isolate Acquisition Marketing Spend: Work to separate marketing expenses aimed at acquiring new customers from those aimed at retaining existing ones. This is fundamental to an accurate CAC.
4. Compute CM2 for a Unified View: With CAC and CM1 in hand, you can now calculate CM2. This provides the first true apples-to-apples comparison of which channel is more profitable for acquiring new customers.
5. Focus on Directional LTV: Use cohort data for your DTC channel to get a solid LTV baseline. For marketplaces, acknowledge the data limitations and focus on the strategic value of owning the customer relationship. This complete picture of ecommerce KPI differences will finally allow you to start evaluating sales channels with confidence.

Explore our guides on expense categorization for more implementation details.

Frequently Asked Questions

Q: Why is Contribution Margin 2 (CM2) the key metric for comparing channels?

A: CM2 provides the most accurate comparison because it accounts for both fulfillment costs (in CM1) and the specific cost to acquire a new customer. It answers the crucial question: "After all variable costs and marketing, how profitable is a new customer's first order on this channel?"

Q: How can I calculate CAC on Amazon without new vs. repeat customer data?

A: Since Amazon does not provide clear new versus repeat data, you must use a directional approach. Start by calculating a blended CAC using total ad spend against total orders. Then, you can model scenarios, assuming a certain percentage of ad spend is for new acquisition to estimate a more accurate CAC.

Q: How often should I perform this channel profitability analysis?

A: For early-stage startups, a monthly review is a practical cadence. This frequency is enough to spot trends in ad costs, fees, or shipping without causing analysis paralysis. If you are in a high-growth phase with significant ad spend, a bi-weekly check-in might be necessary.