Where is your margin leaking? Here's how I check.

When did you last check that your margin is still what you think it is?

You're about to set your next big sale discount. Black Friday, Christmas, end of season. 20% off? 30%? Free shipping on everything?

Whatever you pick, it all comes back to one number: your margin.

Sales can look great while margin quietly leaks out in small places. A discount here, a fee there, a return that never made it back to the shelf. None of it looks like a big problem on its own. Until you add it all up.

Before any big sale, and as a regular margin health check, these are the basic checks I start with.

1. Discounts that do more than you planned

If you only check one thing, start here.

Pull your discount report from the last few months and look for three things:

• Codes that stack. A welcome code plus a sale price plus a free-shipping code on the same order. Each one made sense on its own. Together, the order might not make money.
• Codes that never expired. The influencer code from last year that still works. The "one-time" code that got shared.
• Discounts on the wrong products. A sitewide 25% off hits a product with a 70% margin very differently from one with a 35% margin.

2. Free shipping that stopped covering itself

Your free-shipping threshold made sense when you set it. Since then, carrier prices have gone up, and your orders may have changed too.

So check: on orders that shipped free, what did shipping actually cost you, on average? Is your threshold still covering it?

3. Payment fees

Open your monthly payment report and look at the total fees. Is that what you expected to pay?

If it's higher, look at:

• Chargebacks and dispute fees
• Currency conversion fees on overseas orders
• Refunds. With many payment providers, the processing fee isn't returned when you refund an order. Check your provider's terms. Every refund costs you twice.

4. Returns that never come back

When an order is returned, the refund is recorded straight away. The stock is another story.

I trace a handful of recent returns all the way through. Was the item restocked? Written off? Or is it sitting in a corner of the warehouse, counted as stock nobody can sell?

What you can do (depends on your product):

• Inspect quickly and put sellable items back on sale within days, not weeks.
• Opened items often can't be resold. Write them off or donate them, and record why. Check the tax side with your accountant.
• Some can be fixed and sold as refurbished.
• Sell slightly marked items as seconds or open-box, at a discount.

And claim what you still can:

• Damaged on the way to the customer: claim from the carrier, or through your 3PL if they book your shipping.
• Faulty from the factory: claim a credit from your supplier.

Check the claim windows in your 3PL, carrier and supplier agreements now, not after a big sale.

If the same terms keep costing you, like short claim windows or low claim limits, use that when you renegotiate with your carrier, 3PL or supplier. And match your own return window to theirs as much as you can, so a return doesn't land after your claim window has closed.

Finally, track why things come back (sizing, description, damage), so you fix the cause, not just the return.

5. Apps and software that doubled up

Most stores add apps one need at a time. A returns app. A tracking app. Package protection. A warranty app.

But apps grow. Some package protection apps now include returns, order tracking and even warranty claims. If you're also paying for separate apps that do those same jobs, you're paying twice.

Every recurring cost should match what it delivers today, not what it promised when you signed up. In the brands I've worked with, going through this line by line has taken thousands a year out of software costs. At one, it was $16,600 a year, with no hit to revenue.

6. The bestseller that makes almost nothing

This is the one that surprises people most.

For each product, I work out what's actually left from each sale after every direct cost: product cost, discounts, refunds, shipping and payment fees. That's called contribution margin.

For example: Product A sells 1,000 a month, but it's always discounted, it's heavy to ship and it gets returned a lot. You keep $2 on each one. Product B sells 300 a month, and you keep $15 on each. Product B makes more than double what your bestseller does.

Why these leaks go unnoticed

Usually it's not a lack of care. It's how the numbers are set up:

• Costs get lumped together, so a leak hides inside a bigger line.
• The margin only shows up in the monthly report. By the time you see it, a leak may have been running for weeks.
• The cost looks fine because it's within budget. But that budget was set on last year's prices and volumes. A leak that's small on one order gets multiplied across every Black Friday order.

Set a regular check that fits your business. Monthly if you run lots of promos or you're growing fast. Every quarter if things are steady. And always before a big sale. In between, pick 3 numbers and look at them every week. For example: discounts as a percentage of sales, shipping cost per order, and refund rate. If one of them moves, you'll know where to look, early.

What this actually takes

To do this properly, you need your P&L, a sales export by product, the discount report, refunds, your payment reports and shipping costs, all for the same period. Then you match them up, line by line, until they agree.

You can absolutely do it yourself. It's just hours of careful work, usually right when you should be planning your next big sale or growing the business.

Your quick checklist

• Discounts: which codes stack, which are still live, and which products can't take a deep discount.
• Free shipping: is your threshold still covering what shipping costs you now?
• Payment fees: are your total fees what you expected? Check chargebacks, currency fees and refunds.
• Returns: is returned stock restocked, resold, claimed or written off?
• Apps and software: are any of them doing the same job twice?
• Products: which ones actually make money after every direct cost?

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This is the kind of line-by-line work we do at KATOS. See how we handle it →

Common questions

Sources

• Stripe – Understanding fees for refunded payments
• PayPal – Common questions about issuing refunds