Why Your Ecommerce Business is Losing Money - And How to Fix It

Running an ecommerce business can sometimes feel like a constant uphill battle. Sales might be coming in, but at the end of the month, your bank account tells a different story and you're wondering where all the money has gone.

Many ecommerce business owners struggle with declining sales, narrow profit margins and rising costs, often without understanding the root cause. So they keep trying different tactics and quick fixes without fixing the real problem.

If your business is losing money, it’s time to stop guessing and start diagnosing. Here are five common reasons ecommerce businesses lose money, and how to fix them.

1. Your Customer Acquisition Costs (CAC) Are Too High

You're spending a fortune on ads, but your return on investment isn’t keeping up. Every new customer costs more to acquire, and it’s eating into your profits.

What causes this:

• Ad costs are increasing due to competition.

• Your targeting, messaging, or creative isn’t effective.

• Your website isn’t converting visitors into buyers.

• You don’t have a strong retention strategy, making you over-reliant on new customers.

How to fix it:

• Optimise your ad strategy – Test new creatives, refine audience targeting, and focus on higher-converting platforms.

• Improve your website conversion rate – Reduce friction in the buying process, speed up page load times, and enhance product pages.

• Focus on customer retention – Implement email/SMS marketing, upsells, and loyalty programmes to get more value from existing customers.

• Diversify traffic sources – Rely less on paid ads by leveraging organic content, SEO, influencer marketing, and partnerships.

2. Your Profit Margins Are Too Thin

You’re making sales, but after covering costs, there’s barely anything left. If your margins are too low, it doesn’t matter how much revenue you generate, it won’t translate into profit.

Why this happens:

• Product costs and fulfilment expenses are too high.

• You’re discounting too much to drive sales.

• Your pricing strategy isn’t aligned with profitability.

How to fix it:

• Reevaluate pricing – Increase prices where possible, focusing on value rather than competing on price.

• Reduce fulfilment costs – Negotiate better rates with suppliers or switch to a more cost-effective fulfilment partner.

• Eliminate excessive discounts – Use strategic offers like bundling or exclusive deals instead of site-wide discounts.

• Increase average order value (AOV) – Encourage larger purchases through upsells, bundles, and free shipping thresholds.

3. Your Return Rate is Too High

Returns are eating away at your profits. Even if you make a sale, a high percentage of customers are sending items back, creating unnecessary costs.

What causes this:

• Product quality doesn’t meet customer expectations.

• Sizing, descriptions, or photos are inaccurate.

• Poor packaging or fulfilment leads to damaged items.

How to fix it:

• Improve product descriptions – Use clear, detailed copy, high-quality images and videos, and customer reviews to set the right expectations.

• Enhance quality control – Ensure consistency in manufacturing and packaging.

• Offer better sizing tools and fit guides – Reduce sizing-related returns for fashion products.

• Make returns easy but strategic – Offer incentives for exchanges instead of refunds and provide store credit options.

4. Your Repeat Purchase Rate is Too Low

You work hard to acquire customers, but they only buy once. If you’re constantly relying on new customers to sustain your business, growth becomes expensive and unsustainable.

Why this happens:

• No or poor post-purchase engagement or follow-ups.

• Weak brand loyalty and customer experience.

• No incentives for repeat purchases.

How to fix it:

• Build a post-purchase email/SMS sequence – Stay in touch with customers and offer incentives for their next purchase.

• Introduce a loyalty programme – Reward customers for repeat purchases and referrals.

• Offer subscription or refill options – If relevant, make reordering easy with auto-ship options.

• Improve customer experience – Ensure fast shipping, great packaging, and strong customer service to leave a lasting impression.

5. Poor Inventory Management is Costing You

You either have too much stock sitting in a warehouse or not enough to meet demand. Poor stock management leads to cash flow issues, increased storage fees, and lost sales opportunities.

What causes this:

• Ordering too much stock without sales data analysis.

• Running out of bestsellers due to inaccurate demand forecasting.

• Slow-moving products tying up cash flow.

How to fix it:

• Use data to forecast demand – Analyse past sales trends to predict how much stock you need.

• Introduce pre-orders or just-in-time manufacturing – Reduce the risk of overstocking.

• Identify and clear slow-moving stock – Run clearance sales or bundle slow movers with bestsellers.

• Improve supplier relationships – Work with suppliers to ensure faster restocking when needed.

The key thing to understand here is, if your ecommerce business is losing money, it’s not just bad luck, it’s a sign that something needs to change. By tackling high acquisition costs, improving profit margins, reducing returns, increasing repeat purchases, and optimising stock, you can turn things around. But it's important to act early, leaving it and hoping it'll change doesn't work.

Rather than guessing what to fix next, there's a great free online assessment you can take that will identify the gaps in your business and provide suggestions for fixing them. It's well worth 3 minutes of your time to do, and the quickest way to get your business back on track.