E-commerce Expense Reports: How to Track and Optimize Costs

How do e-commerce expense reports differ from regular financial reports? What key details should you be tracking? And how many different types of reports do you actually need to keep your business finances in check?

If these questions crossed your mind the moment you heard the term e-commerce expense reports, don’t worry. doola is here to help.

Running an online store comes with unique costs. Transaction fees, ad spend, shipping, fulfillment, returns, all of which add up really fast. Standard financial reports don’t always capture these details, which is why e-commerce-specific expense reports exist. 

They give you a transparent and insightful picture of where your money is actually going, helping you track profitability and manage cash flow systematically.

But there’s more to it than just categorizing e-commerce expenses. These reports can help you spot inefficiencies, optimize costs, and ultimately increase profitability of your online business. The key is knowing how to use them correctly. Otherwise, they’re just numbers on a spreadsheet.

So, let’s break it down. In this blog, we’ll go over what makes e-commerce expense reports unique and how to use them to make smarter financial decisions.

Why Expense Tracking Is Crucial for E-commerce Businesses

Here’s why expense tracking should be a priority for your e-commerce business:

Profit Margins Are Thinner Than You Think

E-commerce businesses deal with inventory costs, shipping, platform fees, ad spend, returns, and transaction fees, all of which eat into your profits.

If you’re not tracking every expense, you might think you’re making money when, in reality, your margins are slipping away.

Cash Flow Can Make or Break You

Expenses don’t wait for revenue to roll in. You need to pay suppliers, ad platforms, and fulfillment centers. And sometimes before you even make a sale.

Tracking expenses ensures you’re not overspending and keeps your cash flow healthy.

Scaling Without Expense Control Is a Disaster Waiting to Happen

You can’t grow a business with poor financial habits. If you don’t have a clear picture of your profitability and operational costs, you might expand too soon, invest in the wrong areas, or run out of funds when you need them most. Financial discipline fuels sustainable growth.

Data-Driven Decisions = Higher Profits

Expense tracking is also about controlling your financial future. Are your ads bringing in enough ROI? Is a certain product eating up shipping costs?

When you know where your money is going, you can optimize spending and maximize profitability.

Tax Time Is Smoother (and Less Costly)

A well-tracked e-commerce business means organized records, fewer errors, and more deductions come tax season. Instead of scrambling to categorize expenses at the last minute, you’ll be prepared, compliant, and possibly save more money than you expected.

Common E-commerce Expenses and How to Categorize Them

Let’s break down the major e-commerce expense categories in simple terms:

Inventory and Supply Costs

This expense includes everything you buy to sell like products, raw materials (if you make your own goods), and packaging supplies.

Examples:

✔️ Buying stock from suppliers or manufacturers

✔️ Raw materials for handmade products

✔️ Packaging materials (boxes, tape, labels)

How to Categorize:

Label these as “Cost of Goods Sold (COGS)” in your books. These are direct expenses, meaning they are tied to the products you sell.

Marketing and Advertising Expenses

These are the expenses you incur to promote your store, attract customers, and drive sales. Whether you’re running ads or working with influencers, these costs play a crucial role in growing your business.

Examples:

✔️ Paid ads (Google, Facebook, Instagram, YouTube)

✔️ Sponsored posts or influencer promotions

✔️ Website SEO (Search Engine Optimization) services

✔️ Email marketing software (like Mailchimp or Klaviyo)

How to Categorize:

These should be filed under “Marketing & Advertising”. Tracking these costs helps you understand which marketing strategies are profitable and which ones need to be adjusted.

Transaction and Payment Processing Fees

Every time a customer makes a purchase, a percentage of that sale goes to payment processors or banks as transaction fees. These are small fees per transaction but can add up significantly over time.

Examples:

✔️ Credit card processing fees (Visa, Mastercard, American Express)

✔️ Payment gateway fees (Stripe, PayPal, Razorpay, Square)

✔️ Digital wallet fees (Google Pay, Apple Pay)

✔️ Buy Now, Pay Later service fees (Afterpay, Klarna)

✔️ Cross-border payment processing fees (if selling internationally)

How to Categorize:

These expenses should be labeled as “Payment Processing Fees”. Monitoring them closely ensures that you understand how much of your revenue is lost to transaction costs and whether certain payment options are worth keeping.

Shipping and Fulfillment Costs

These are the costs associated with delivering products to customers and handling returns. This category is critical because high shipping costs can eat into your profits if not managed properly.

Examples:

✔️ Courier and shipping fees (FedEx, UPS, DHL, India Post)

✔️ Shipping software subscriptions (ShipStation, Shippo)

✔️ Fulfillment service fees (Amazon FBA, third-party logistics providers)

✔️ Cost of returns and refunds (restocking, reverse shipping)

✔️ Freight costs for bulk shipments from suppliers

How to Categorize:

These should be recorded as “Shipping & Fulfillment Costs”. Tracking these ensures that you price your shipping fees correctly and avoid unnecessary losses on deliveries.

Best Practices for Tracking E-commerce Expenses

Here’s how to stay in control of your e-commerce finances:

Use Accounting Software, Not Just Spreadsheets

Spreadsheets are fine for small-scale tracking, but once transactions increase, manual entry leads to errors and lost data.

What you should do instead:

• Use accounting tools like doola, QuickBooks, Xero, or Wave to automate expense tracking.

• Sync accounting software with your bank account and payment gateways (Shopify, and PayPal).

• Set up expense categories to track spending efficiently.

Review and Reconcile Transactions Weekly

Waiting until tax season to check your expenses is risky, you might miss duplicate charges, unexpected price increases, or incorrect transactions.

What you should do:

• Set aside 30 minutes every week to review transactions.

• Match bank statements with invoices and receipts.

• Flag any unusual or incorrect charges immediately.

Separate Business and Personal Finances

Mixing personal and business bank accounts creates confusion, makes tax filing a nightmare, and prevents you from understanding your actual profits.

What you need to do:

• Open a business bank account and credit card to track business transactions separately.

• Pay for inventory, shipping, and ads only through your business account.

• Keep personal and business expenses separate to avoid accounting issues.

Track Profit Margins, Not Just Revenue

Revenue means nothing if your expenses are too high. Knowing your actual profit per sale helps you adjust pricing, control costs, and improve cash flow.

What steps to follow:

• Calculate net profit after deducting all expenses (Revenue – Expenses = Profit).

• Use financial dashboards like doola accounting, ProfitWell, or your inhouse accounting software to monitor profit trends.

• Cut unnecessary expenses if profit margins are shrinking.

How to Optimize E-commerce Costs and Increase Profitability

The answer is quite simple.

Instead of looking at expenses as a fixed reality, treat them as a flexible system. If you start by deciding how much profit you want per unit, then work backward to optimize every cost along the way, you take back control of your margins.

Step 1: Set Your Profit Target First, Not Last

Most businesses price their products based on what competitors charge or what “feels right.” That’s the wrong approach.

Instead, start with:

• How much profit do you actually want per unit sold?

• What’s the lowest possible cost to fulfill an order without hurting quality?

• How much customer acquisition cost (CAC) can you afford while staying profitable?

Example: Instead of pricing a product at $50 and hoping you make a profit, start by deciding, I need a 40% margin on every sale. Then, work backward to make sure your total cost (ads, inventory, fulfillment, and transaction fees) never exceeds 60% of the selling price. This forces you to optimize costs instead of taking them as a given.

Step 2: Flip the CAC Game. Let Existing Customers Pay for New Ones

One of the biggest profit killers in e-commerce is spending too much on acquiring new customers (Customer Acquisition Cost – CAC) while ignoring the goldmine (your existing customers).

Most brands treat every customer as a one-time buyer, but the secret to long-term profitability is getting repeat purchases without additional ad spend.

Instead of constantly spending on ads to chase new customers, shift your marketing strategy. Use the revenue from repeat customers to offset acquisition costs. 

How to do this: The first 7-14 days after a purchase is the best window to lock in a repeat sale. So, use post-purchase email & SMS flows to suggest complementary products. 

Plus, include one-time discounts for a second purchase if made within a short time frame. Add subscriptions or loyalty programs to encourage long-term buying behavior.

Step 3: Kill the “Ad Spend Addiction”, Own Your Audience Instead

If your business dies the second you stop running ads, then you don’t have a business, you have an expensive customer acquisition machine. Remember, paid ads are great for scaling, but they shouldn’t be your only source of customers. 

The most profitable e-commerce brands don’t rely on ads to survive, they use them to boost an already working system where customers come in organically and return without needing paid promotions.

How to Build an Audience That Buys Without Ads:

Start leveraging email & SMS marketing now. If you’re not collecting customer emails and phone numbers at checkout, you’re leaving money on the table. Email and SMS should drive at least 30% of your revenue through:

• Post-purchase follow-ups (upsells, reviews, and loyalty programs).

• Abandoned cart reminders to recover lost sales.

• Seasonal promotions & exclusive discounts for returning customers.

Next, invest in organic traffic to reduce ad dependence. If you’re only relying on paid traffic, you’ll always be paying for every single visitor. Instead, bring in free traffic through SEO, content marketing, and brand awareness.

Related Read | E-commerce Expense Tracking: A Step-by-Step Guide

Automating Expense Tracking With doola Bookkeeping

Missed transactions, uncategorized expenses, and disorganized records often lead to cash flow mismanagement, tax headaches, and lost profits. 

That’s why e-commerce businesses need automated, real-time bookkeeping that tracks every amount effortlessly.

How doola Automates Expense Tracking:

Real-time transaction tracking: doola syncs directly with your bank accounts, payment processors and business credit cards to automatically record every incoming and outgoing transaction in real-time.

Automatic expense categorization: Every expense — whether it’s inventory, ads, shipping, or software subscriptions gets filtered into the right category without manual input. This keeps your financial reports clean and ready for analysis.

Custom bookkeeping dashboard: Additionally, doola provides an intuitive dashboard where you can view your financial statements, monitor cash flow, and track profitability at a glance. No need to wait until month-end to get your financial reports.

Built-in tax readiness: With all expenses tracked and categorized, tax filing becomes stress-free. doola keeps everything organized so you’re always IRS and compliance-ready.

Expert bookkeeping support: While automation handles day-to-day tracking, our bookkeeping professionals review your records, ensure accuracy, and provide insights to optimize costs and improve profitability of your e-commerce business.

Book a demo with us to see how effortless expense tracking can be!

FAQs

How can I categorize my e-commerce expenses effectively?

Use clear categories like Inventory & Supplies, Marketing & Ads, Shipping & Fulfillment, and Payment Processing Fees. Automate categorization with bookkeeping software to keep records organized.

What are the tax implications of tracking e-commerce expenses accurately?

Proper tracking helps you claim deductions, reduce taxable income, and avoid IRS penalties. Accurate records ensure compliance and make tax filing easier.

How can I reduce unnecessary e-commerce business costs?

Analyze expenses regularly, cut underperforming ads, negotiate supplier rates, optimize shipping costs, and eliminate unused subscriptions.

What common mistakes should I avoid when tracking e-commerce expenses?

Avoid mixing personal and business finances, failing to categorize expenses, neglecting small fees, and waiting until tax season to organize records.