Why does marketplace revenue grow while profit falls?

Marketplace revenue can grow quickly while less profit remains. This typically happens when teams manage toward revenue, product margin percentage, or ad-attributed sales without calculating full contribution margin per SKU.

The calculation every SKU needs

Start with revenue excluding VAT, then subtract:

• cost of goods;
• marketplace commission and selling fees;
• fulfilment, packaging, and shipping;
• expected returns and recovery costs;
• discounts and promotional contributions;
• advertising spend;
• other variable costs incurred only because the order exists.

What remains is contribution margin: the amount the order contributes toward fixed costs and profit.

Overhead obviously belongs in the company budget. But assigning every office, employee, and general cost directly to a minimum SKU price can push a viable product out of the market. The useful questions are which costs genuinely change when one extra unit is sold, and what total volume is required to cover the fixed cost base.

Why a lower price can produce more profit

Suppose the same product can sell at €100 or €85. At €100, the margin percentage per sale is higher. But if that price causes fewer relevant clicks, lower conversion, more expensive advertising, and comparison with stronger alternatives, absolute monthly profit can be lower.

At €85, conversion and sales velocity may improve. Ad clicks are used more efficiently, purchasing and logistics may gain scale, and the review base can grow. Even return rates can improve when the delivered value matches the expectation created by the price more closely.

This is not an argument for always being cheaper. It is an argument for judging price on absolute contribution margin per period, not margin percentage per unit alone.

For illustration, a 10% margin on €1 million creates a larger gross contribution than 50% on €100,000. The higher volume may also require more working capital, risk, and operational capacity. Compare cash, capacity, and contribution, not one percentage.

Four causes of unprofitable growth

1. Advertising replaces organic sales. The campaign receives credit for revenue that may have happened without the ad.
2. A small component consumes the budget. One keyword, placement, or product uses substantial spend without enough incremental margin.
3. Returns grow faster than sales. A mismatch in value perception can make additional volume less profitable.
4. Pricing and logistics are not designed for scale. More orders merely multiply inefficiency.

Amazon defines ACoS as advertising spend divided by attributed ad sales and explicitly notes that it is not the only measure of success. See Amazon’s explanation of ACoS and ROAS. Bol recommends including purchasing, logistics, returns, commission, and overhead when setting selling prices.

A dashboard should lead to a decision

Useful reporting therefore shows more than revenue and ACoS. It should include revenue, contribution margin, advertising share, return impact, inventory, and trend per SKU, followed by a clear action: scale, repair, automate, or stop.

Also read how to manage Sponsored Products for profit rather than ACoS alone.