Back to Case Studies
Case Study · E-Commerce Finance · US Market

Their books showed 42% gross margin.
The business was running on 19%.

How a US health & wellness brand discovered their most-advertised product had an 11% true margin — and what happened after we fixed the COGS architecture.

$274K
Additional gross profit in 6 months
42% → 19%
Reported vs actual gross margin
$3.2M
Revenue · Amazon FBA + Shopify DTC
The Client

A growing DTC brand, always short on cash

A US-based health and wellness brand generating $3.2M in annual revenue across Amazon FBA and Shopify. Strong product reviews. Consistent repeat orders. Fast growth.

But the owner kept running into the same wall: the P&L looked healthy, yet cash was always tighter than it should be. They couldn't confidently fund the next inventory reorder. They'd raised prices twice. Nothing improved.

When they reached out, they thought they had a marketing problem. They had an accounting problem.

Amazon FBA Shopify DTC Health & Wellness $1M–$5M Revenue China Sourcing
The Symptoms
1
Cash never matched the P&L
Reported 42% gross margin, yet consistently needed credit to fund routine reorders.
2
Price increases didn't help
Two rounds of 8–12% price increases produced no visible improvement in cash position.
3
Best-seller was a mystery
Top product by revenue received the most ad spend — but somehow the business felt least profitable on it.
4
Books were technically clean
No errors. No missing entries. Just the wrong cost categories being measured.
The Problem

The ledger was technically correct
and completely wrong

Their QuickBooks was accurate to the penny. But COGS was defined as purchase price from the supplier — and nothing else. Four major cost categories were either missing from the gross margin calculation entirely, or buried in operating expenses.

What Their Books Showed
COGS per unit — Top SKU
Supplier purchase price$14.20
Inbound freight from Chinanot included
Import duty (18%)not included
Amazon FBA fulfilment feein operating expenses
Return processing (14% rate)not captured
Storage & long-term feesnot captured
Reported COGS $14.20
Implied gross margin on $25: 43.2%
→
What The Numbers Actually Were
Fully-loaded COGS / unit
Supplier purchase price$14.20
Inbound freight (8% of landed)+ $1.36
Import duty @ 18% FOB+ $2.56
Amazon FBA fulfilment fee+ $3.22
Return processing allocation+ $0.74
Storage allocation / unit+ $0.18
True COGS $22.26
Actual gross margin on $25: 10.96%
"The books weren't wrong. They were measuring the wrong thing. Purchase price is not cost of goods sold — it's the starting point."
CA Abhishek Sachdeva · Wealthovation Global
The Discovery

Four cost categories no one was tracking

Each one looked manageable in isolation. Together, they were consuming 23 percentage points of gross margin that management believed they had.

$2.56
Import Duty · Per Unit
Goods sourced from China attracted an 18% import duty on the FOB value. The duty was being paid — but logged as a wire transfer expense, not absorbed into COGS. It simply didn't exist in the margin calculation.
↑ True COGS by 18% · ~$112K missed annually
$3.22
FBA Fulfilment Fee · Per Unit
Amazon's fulfilment fee was classified as a "selling expense" under operating costs. Correct from a strict OpEx standpoint — but this meant it never reduced gross margin, creating a structural illusion of profitability.
↑ True COGS by 22.7% · ~$141K missed annually
$1.36
Inbound Freight · Per Unit
Shipping from the China manufacturer to Amazon fulfilment centres was treated as a quarterly logistics cost — not allocated to units. This made every reorder look cheaper than it was, obscuring the true landed cost.
↑ True COGS by 9.6% · ~$59K missed annually
$0.92
Returns + Storage · Per Unit Avg
With a 14% return rate and growing FBA storage fees, neither was allocated back to individual SKUs. The highest-velocity product — which drove the most returns — bore zero cost for them. Low-velocity SKUs with storage fees looked deceptively healthy.
↑ True COGS by 6.5% · ~$40K missed annually
Combined miss: $8.06 per unit in untracked costs across a catalogue moving 6,200+ units per month. That's $599K per year in costs the business believed was profit.
Based on full 12-month COGS reconstruction · Wealthovation Global
The Reckoning

SKU by SKU — the real picture

Every product was analysed on a fully-loaded basis. What the business discovered changed every decision they were making about inventory, advertising, and product development.

Product Monthly Units Sell Price Reported Margin Actual Margin Gap True Margin Decision
SKU A — Collagen Complex#1 Revenue
Top ad spend · Highest revenue
 2,840 $25.00 43.2% 11.0% ▼ 32.2pp
Reposition
SKU B — Magnesium Sleep
Medium ad spend · Stable reviews
 1,620 $32.00 38.9% 23.4% ▼ 15.5pp
Monitor
SKU C — Omega-3 Pro
Low ad spend · High repeat rate
 980 $44.00 40.6% 31.2% ▼ 9.4pp
Scale
SKU D — Vitamin D3+K2
New launch · Minimal spend
 760 $38.00 37.1% 26.8% ▼ 10.3pp
Scale
The product receiving the most advertising budget had the worst true margin in the portfolio. SKU A was a machine designed to barely break even — and it was being scaled aggressively on revenue data alone.
Wealthovation Global · SKU profitability analysis
The Work

What we built — and why it held

This wasn't a one-time fix. The goal was a system that would give the owner accurate margin data automatically, every month, without manual effort.

01
Full 12-month COGS reconstruction
Rebuilt every month of the prior year on an accrual basis — allocating freight, duty, FBA fees, return costs, and storage back to individual SKUs. This established the true baseline and confirmed where each cost category had been misclassified, month by month.
→ QuickBooks Online · Amazon Seller Central reports · Freight invoices · CBP entry summaries
02
Landed cost model — automated, per-SKU
Built a Google Sheets–based landed cost calculator linked directly to purchase orders and freight invoices. Every new inventory shipment is entered once — the model calculates per-unit duty, freight, and handling automatically and generates a fully-loaded COGS figure that feeds into QuickBooks via a monthly journal entry.
→ Google Sheets model · QuickBooks journal integration · Monthly reconciliation protocol
03
FBA fee reclassification + payout reconciliation
Reclassified FBA fulfilment fees from operating expenses into COGS at the SKU level using A2X's transaction-level data. Set up automated bank feed rules in QBO to ensure ongoing classification is consistent. Built a payout reconciliation template that maps every Amazon settlement line to the correct account.
→ A2X · QuickBooks Online · Amazon Seller Central Settlement Reports
04
Monthly SKU-level P&L dashboard
Delivered a monthly one-page financial dashboard showing contribution margin by SKU — after COGS, returns, FBA fees, and advertising. Replaced the single blended gross margin number that had been obscuring the true portfolio picture. Delivered by the 8th of every month.
→ Zoho Analytics · QuickBooks Online data feed
05
Inventory reorder logic overhaul
Rebuilt the client's reorder framework around contribution margin per dollar invested rather than revenue velocity. This immediately identified that SKU A was consuming $2.40 in working capital for every $1.00 of profit generated, while SKU C returned $4.10 per dollar. The reorder queue was completely restructured within 30 days.
→ Inventory model in Google Sheets · Linked to QBO COGS data · Margin-per-dollar-invested metric
The Result

Same revenue. $274K more in gross profit.

Six months after the COGS overhaul and portfolio reallocation, the numbers told a different story — not because revenue changed, but because resources were finally following real margin data.

$274K
Additional gross profit vs prior 6-month period
19% → 29%
True gross margin improvement after COGS correction
$180K
Advertising shifted from SKU A to SKU C & D
$95K
Overstock on SKU A avoided through margin-based reordering
Month 1 — Onboarding
Full diagnostic + 12-month COGS reconstruction
Established true baseline. First clean SKU-level P&L delivered.
Month 2 — System Build
Landed cost model live · FBA reclassification complete
QBO updated. Automated payout reconciliation running. No more manual CSV exports.
Month 3 — First Real Decision
Ad spend reallocated from SKU A to SKU C and D
Client paused SKU A ads. Scaled SKU C by 3×. SKU D received first meaningful budget.
Month 4–5 — Inventory Reset
Reorder quantities rebuilt on margin-per-dollar logic
Avoided $95K reorder of SKU A that would have been made on pure velocity data.
Month 6 — Result
$3.1M revenue · $891K gross profit vs prior $617K
$274K more in gross profit. No revenue growth required. Just better information.
Is This You?

Six signs your COGS is lying to you

This client's situation is not unusual. These patterns appear repeatedly across US e-commerce businesses in the $1M–$10M revenue range.

①
Cash is always tighter than the P&L suggests
Reported margins look healthy but you're constantly stretching to fund reorders.
②
COGS equals your supplier invoice — and nothing else
Freight, duty, FBA fees, and returns are tracked, but not inside your gross margin.
③
You rank SKUs by revenue, not true margin
Your biggest seller gets the most ad spend, but you can't say with confidence it's your most profitable.
④
Price increases don't seem to stick
You've raised prices but cash position hasn't improved. The leak is in COGS, not pricing.
⑤
FBA fees live in operating expenses
Amazon fulfilment is a direct cost of producing a sold unit. Its position in your chart distorts your entire gross margin.
⑥
You source overseas but don't track duty per unit
Import duties are paid — but as a bulk expense, not allocated to individual products or orders.
Next Step

Find out what your real margins look like.

We offer a complimentary E-Commerce COGS Audit — a 45-minute diagnostic session where we review your current COGS structure and identify exactly which cost categories are missing from your margin calculation.

Book Your Free COGS Audit → Start a Conversation
Chartered Accountant · ICAI Ex Grant Thornton LLP QuickBooks ProAdvisor Xero Certified Top Rated · Upwork