March 8, 2023
Adam Hoeksema
The IRS publishes tax return data each year on the roughly 28,000,000 sole proprietorships in the U.S. We analyzed the 168,970 tax returns that were filed in the ecommerce industry to pull out some key statistics and insights to help our customers ensure that they are creating realistic financial projections for their ecommerce business.
We hope that this data will be helpful for you as a “reality check” for your financial projections and ecommerce business planning process. We hope you create a forecast for your unique situation and plan, and then use this data to make sure your projections seem reasonable based on industry averages.
Here is what we will cover in this article:
Learn How to Use this Financial Data
If you are creating projections for your startup business, or you just want to see how your existing business stacks up to industry averages, you can take your income statement and compare key ratios and percentages for your business compared to this industry average data.
How many ecommerce businesses in the US are sole proprietorships
There are approximately 169,000 ecommerce businesses in the US organized as sole proprietorships. We specifically analyzed 168,970 companies based on the 2019 IRS tax return data.
Average annual revenue for ecommerce companies
The average annual revenue for all sole proprietorship ecommerce businesses in the U.S. was just $52,953.
While this number seems quite low, you have to remember that this likely includes people that are selling just a few items on Amazon or Ebay as a side hustle, and that many of these are not full time businesses. This would drive the average revenue down significantly.
If you want to have a better understanding of what a full scale Direct to Consumer brand that sells via ecommerce can generate in terms of revenue, check out our study of 99 DTC brands where we found that the average ecommerce business that was less than 2 years old generated just under $1 million in annual revenue.
Average annual expenses for an ecommerce business
The average annual expenses for all sole proprietorship ecommerce businesses in the U.S. was $47,859.
The raw dollar amount is less important here, the important thing to note is that all expenses for a ecommerce business amounted to 90% of total revenue.
Average net profit margin for a ecommerce business
The average net profit margin for an ecommerce company was 10%.
How much can I make by owning an ecommerce business?
If you are wondering how much you might be able to make by owning your own ecommerce practice, you can get a good idea by creating an ecommerce revenue projection Once you have a revenue forecast then simply multiply that by 10% (the net profit margin) to come up with a forecasted profit as the owner of the business.
Top 10 expenses for an ecommerce business
Based on the tax returns of 168,000+ sole proprietors operating in the ecommerce industry, the following were the 10 largest business expenses as a percentage of revenue.
Average material cost for an ecommerce company
The average ecommerce business spent 42% of revenue on material costs.
In other words if they sold a product for $100 it would cost the company $42 on average.
This means the average markup for a product sold via ecommerce is roughly 2.4x.
Average sales commission for an ecommerce brand
The average ecommerce business spent 6% of annual revenue on sales commissions. This could be affiliate commissions or even commissions paid to Amazon or eBay etc.
Average advertising expense for an ecommerce business
The average sole proprietor ecommerce business spent roughly 4% of annual revenue on advertising.
Average car and truck expenses for an ecommerce brand
The average sole proprietor ecommerce company spent roughly 3% of annual revenue on car and truck expenses.
It is hard to know exactly what individual tax filers might include in the expense category, but I suspect that this would include shipping costs. So I think it is safe to assume that the average ecommerce business spent roughly 3% of revenue on shipping.
Average inventory held as a percentage of annual sales for ecommerce
The average ecommerce company held an inventory balance of roughly 8% of annual revenue.
Important Details about the Data
I want to point out a few key items about the data:
- You can download this data for free from the IRS website.
- The data includes 168,970 ecommerce sole proprietorships in the U.S. in 2019.
- This data will include businesses that operate full time, and businesses that only operate on a part time basis.
- Because of this, you should take the raw numbers for revenue, expenses and profit with a grain of salt, but the percentages can still be quite valuable when trying to forecast expenses for your business.
- This data includes businesses from all across the country, keep in mind that revenue and expenses can vary greatly based on your specific geographic location.
- We used 2019 data because we felt it was most likely to be representative of a “normal” environment for the industry. COVID-19 caused disruption to almost every business in 2020 and 2021, so we wanted to utilize “normalized” data.
If you have any questions about the data or how to utilize the data in your financial forecasting process please don’t hesitate to reach out to us!
