How to know if you are making a profit on Etsy

Business finances are not always the most enjoyable business activity if you are a creative person, but making sure you know your financial numbers to determine you are making a profit is vital to run a successful Etsy shop.
How to know if you are making a profit on Etsy

Etsy is an excellent platform for creative entrepreneurs to sell their products, but it’s essential to make sure your shop makes a profit. This can be especially difficult for small businesses, like Etsy shops, which is why we’ve put together a guide to help you.

In this article, I explain how all the Etsy Sales and Fees figures are calculated. And explain how to do your bookkeeping as an Etsy seller.

If you have read any of my previous article posts, you will know by now that I am a lover of a great spreadsheet. But I can’t stress enough that you must keep accurate and timely financial records when running a business, including your Etsy shop. Only then can you make educated decisions that will help grow your business.

Knowing whether your expenses are higher than you thought, what area of revenue is performing the best, or if one function of your business costs you more than another are all questions you need to quickly get a handle on.

Reliable financial data will reveal patterns that aid decision-making. When you make informed decisions, you can save money and increase revenue!

That sounds like a recipe for success to me!

How do you calculate profit?

Fundamentally, you determine your profit by subtracting your business expenses from your revenue. Simple right!

Well, yes, but what you include in your revenue and expenses is where the devil is in the detail. This is where a great bookkeeping process comes into its own.

Why do I need to do bookkeeping?

When starting your Etsy shop, you should have something in place that records your income and expenses. This could be a spreadsheet, an online tool or even go old school with paper and pen.

First and foremost, you need to keep track of your expenses. This includes everything from the cost of materials to listing fees to shipping costs. Once you have a good handle on your expenses, you can start looking at your sales.

Each receipt, invoice and sale is classed as a transaction. Assign each transaction a category, such as Etsy Sales, Materials or Office, for easy sorting and summarising at the end of the year.

By setting up your bookkeeping system in the early days of your Etsy shop, you will save time and stress at tax time.

The difference between gross and net revenue

As an Etsy seller, you might think that the amount paid into your bank from Etsy is your Etsy income, and that is all you need to record. But, unfortunately, that number has had all of the fees removed, so from a tax and business perspective, it is net and not gross.

Gross revenue is your income before you remove any fees and taxes. Your Net revenue is the revenue left after subtracting all of your expenses.

And don’t forget that you can have more expenses than Etsy knows about, so the figures provided by Etsy are not the complete picture of your income!

To keep your account in order, you need to know your total income, fees, and expenses.

Unfortunately, Etsy does not make getting the figures you need easy. However, they do provide sellers with monthly reports that you can download. From there, you can extract and extrapolate the information to get the information you need.

The best thing to do if you want to get serious about your accounts is to use the monthly statement download. Use it as a starting point to record your monthly sales and fee information. Keeping track monthly will give you a good insight into how your business is growing rather than waiting until the end of the year.

What information do I need from Etsy?

You will download 2 monthly spreadsheets from Etsy to get your records on track.

The first is the Orders CSS file which is found here Shop Manager->Settings->Options->Download Data.

From the EtsySoldOrders file, you need to find the total of your Shipping income (column V). This column is the amount you charged your customer for shipping.

You also need the total of the Sales Tax you have paid. This is in the Sales Tax (column W). But, there is a caveat on this. The Sales Tax is a minefield, and new US state laws are constantly being added. It’s worth checking out each state’s tax rules here.

For now, we will keep it simple and assume you only need to know the sales tax for your country or state (if you are based in the US). So work out the total for all orders in your state or country.

The second download is the Monthly Statement found here: Shop Manager->Finances->Monthly Statements.

When you open the file for the Monthly statement, order the rows by the Type column. Then, calculate the subtotal of the Amount, Fees & Taxes and Net columns for each of the different types in the file. Here’s a quick video to show you how.

Once done, you should have subtotals from each of the columns for the following. Depending on your type of shop or location, you may not have all these, or you may have some extra ones that are similar:

  • Deposit
  • Listing
  • Marketing
  • Refund
  • Sale
  • Shipping
  • Subscription
  • Transaction
  • VAT (or some other form of tax)

The calculations

For the Refund value, you need to do the following calculation

Gross Refunds = Refund (Net) + Refund (Fees & Taxes).

Similarly, for the Sale value, you need to do the following calculation

Gross Sales = Sale (Net) + Sale (Fees & Taxes).

You then need to do the following calculations using the values you worked out above:

Net Sales = Gross Sales – Shipping – Sales Tax

Total Etsy Revenue = Net Sales + Shipping – Gross Refund

Total Etsy Expenses = Order Processing + Listing + Marketing + Shipping + Subscription + Transaction + VAT

Etsy Profit = Total Etsy Revenue – Total Etsy Expenses

What about expenses external to your Etsy shop?

Having discovered your expenses from Etsy, you also need all other costs. These are the expenses you rack up to create your products.

These include the raw materials, tools, etc., you need to keep your business going. Check your country’s tax rules to ensure you are claiming everything you can; you may be surprised at what you can claim back.

Calculate the total of these other expenses every month.

What about other income external to your Etsy shop?

You may be selling your product in other ways too. Or maybe you have a blog with affiliate income. There are all sorts of ways that you could be bringing extra income into your business, so make sure you capture it.

Calculate the total of this other income every month.

What is my profit?

Now you have all the figures, your total profit can now be calculated as follows:

Total Profit = Etsy Profit + Total Other Income – Total Other Expenses.

There you go. It’s as simple as that!!

Are you making as much profit as you thought you were?

If doing all these calculations every month seems like a chore, why not take a look last our small business bookkeeping spreadsheet. This bookkeeping spreadsheet identifies the totals for each country and state so that once you know each state’s rules, you can easily see if you have paid taxes or need to pay any.

If you are an Etsy seller, you may be interested in these other articles covering Etsy finances

  1. How much does Etsy cost?
  2. What do Etsy’s revenue figures mean?
  3. How to make Bookkeeping easy for your Etsy shop

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