The Hidden Profit Leak You’re Ignoring: Net Revenue Ratio

Think you know your margins? If you're not tracking Net Revenue Ratio, you’re missing a HUGE profit leak.

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What is it? It’s the % of gross sales that actually becomes net sales—a metric that's surprisingly tricky and requires a revenue reconciliation to get right.

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The Problem: Flawed Sales Reporting

This is a foundational reporting issue that affects nearly every business.Shopify reports sales wrong—we all know this. Amazon is even trickier—they include taxes, shipping, and inflated numbers that make your revenue look higher than it actually is.

To truly understand your net revenue, you need to strip out taxes, discounts, refunds, and add any shipping revenue charged to get the real net revenue.

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The Incentives Are Against You

Agencies—whether it's paid media firms, Amazon account managers, or consultants—are incentivized to report the best number, not the real number. If I were an agency, why would I spend time doing a full revenue reconciliation just to tell my client that their actual revenue is lower? I wouldn’t.

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A Real-World Example: Drew’s Doughnuts:

Amazon reports AOV = $26.60

After calculating net sales, the real AOV = $24.79

That’s a 7% difference ($1.82 per order), leading to a 93% Net Revenue Ratio

Sounds small? It’s not.

If you acquire 30,000 customers per month at this inflated $26.60 AOV that's ~$800k of revenue you are expecting. BUT - really the net AOV is $24.79

In reality, that $1.82/order discrepancy is compounded across 30k orders/month. This is equal to $54,600 per month or $655,200 BURNED annually. For no reason other than you were too lazy to dig in.

Sorry, but your cash flow does not care about your vanity metrics.

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What You Need to Do:

-Perform a Gross-to-Net Revenue Reconciliation—Daily.

-Track new customer unit economics based on actual, itemized order data.

-Estimate refund rates upfront & factor them into your CAC goals.

-Understand how Net Revenue Ratio volatility impacts LTV:CAC.

-Adjust for gross margin fluctuations before making strategic decisions.

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Why This Matters for Cohort Analysis

If you’re running 50% off promotions, have you properly adjusted your LTV:CAC assumptions? Even if those customers retain well, they might be losing you money. Your LTV:CAC ratio is only as good as the AOV you use to calculate it. If you’re blindly trusting in-platform data without reconciling revenue, I guarantee you’re leaving money on the table—and probably making bad acquisition decisions.

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Take Action Now

If you don’t audit this metric, you’re not just misreporting revenue—you’re making critical mistakes in CAC targets, growth strategy, and long-term profitability.

Stop assuming your AOV is correct. Dig in. Reconcile. Find the hidden money. Be positive your contribution margin on new customer acquisition waterfall looks like this: Green (& from iris 😉 ).