After talking to 100+ ecommerce founders, I figured, there are 6 key reasons for low profitability.
- High Customer Acquisition Costs
- Low Retention Rates
- Low Product Margins
- Complex and Expensive Fulfillment Costs
- Poor Financials & Cash Flow
- Rising Fixed Costs
All these are symptoms of the problem.
Before solving for them, we need to understand the cause of these key reasons.
1. High Customer Acquisition Costs
- Inefficient Product-Market Fit
- Lack of differentiation in the market. Change of customer preferences, taste etc.
- Ran out of new users to acquire. Limited by your Total Addressable Market (TAM)
- Higher budgets increase the average cost of acquisition. Most brands want to grow at an unreasonable pace. You can grow to a certain point without losing money.
- You make less money on the customer than it costs them to acquire them.
2. Low Retention
- Bad product quality. Not fulfilling the intended promise, or working as promised
- Bad order experience with delivery issues, returns process, or lack of customer support.
- Weak post-purchase communication – No help guide/cross-sells or win-backs.
- Lack of moat for loyal customers (Membership, Subscription, Loyalty Program).
- Lack of emotional connection with brand – Branding / Community / Cause.
3. Low Product Margins
- Wrong pricing model – Not building discounting inside the products.
- Low selling price – prices are not optimized and tested regularly.
- Wrong sourcing or product.
- Training customers to buy in sales.
4. Complex and Expensive Fulfillment Costs
- Too many SKUs lead to inventory management issues.
- Shipping partners and logistics structure.
- Wrong inventory forecasting.
- Erratic demand spikes – Managing peak shopping seasons (BFCM, Summer).
- High return rates in some niches (fashion)
5. Poor Financials & Cash Flow
- Lack of understanding of key financial metrics.
- Relying on average metrics that mask problems.
- Inefficient marketing attribution to manage and forecast budgets.
- Balancing short-term growth vs long-term profitability
- Focusing on profit margins vs profit dollars
6. Rising Fixed Costs
- Team structure
- Expensive hires instead of the core team.
- Bloated software stack for the business (marketing, ops)
- Outsourced vs in-house team structure
Profitability issues are never due to a single factor.
It’s a combination of issues that are mostly fundamental.
By using first-principle thinking, you can get to the core of the issue.
For example, suppose you have low product margins, you can start breaking it up.
Low margins are due to selling prices and COGs.
To increase the selling price, you can run price experiments, launch variations, service add-ons etc.
To decrease COGs, you can change vendors, launch private labels, change ingredients, and so on.
By dissecting each issue to its core, and using first-principle thinking, we can develop targeted strategies.
Our 4C Framework—Catalog, Customer, Channel, and Cash—provides a structured path to profitability.
The goal is to align your marketing efforts with your ecommerce brand’s financial goals.
Ready to transform your ecommerce brand?
Let’s work together to build a profitable and sustainable future for your brand.