Finance in E-Commerce: What Matters Most?

This interview is based on an episode of the torq.partners Finance Podcast featuring guests Hanna Eisenblätter, Manager, and Max Weinberg, Principal at torq.partners. The full episode is available on Spotify and YouTube as a video podcast.

Many e-commerce entrepreneurs face the challenge of setting up their accounting and tax processes correctly. In your opinion, what are the most common mistakes or pitfalls?

Hanna: A major issue often involves small but very important details that are easy to overlook—for example, currency differences in accounting. These are 1-cent discrepancies that add up and cannot be automatically reconciled by the system, such as in DATEV. If you don’t set them up correctly, the accounting becomes unnecessarily bloated. This becomes a problem at year-end because tax advisors often don’t catch it.

Max: Exactly, and that shows how important it is to structure these kinds of processes properly from the very beginning. Otherwise, you'll eventually end up with a huge mess that's very time-consuming to clean up.

What about working with tax advisors? Especially in the early stages, many e-commerce companies may use an external tax advisory firm to handle their bookkeeping. How can this be structured most effectively?

Hanna: Complexity in e-commerce increases very quickly, especially when you’re selling to many countries or entering new markets. It makes sense to have someone in-house who keeps an eye on the processes and works closely with the tax advisory team. After all, external consultants don’t always catch every detail. Often, you only find out during the monthly closing that some revenue hasn’t been allocated correctly.

Max: Absolutely. You need expertise in e-commerce accounting—either in-house or from a tax advisor. Unfortunately, many “regular” tax advisors don’t have that experience. I often recommend medium-sized firms that specialize in e-commerce. That way, you can avoid a situation where clients haven’t prepared annual financial statements for years because their tax advisor can’t handle the complexity.

What are the specific tax risks associated with e-commerce?

Hanna: One major risk, for example, is the OSS (One-Stop-Shop) filings. If you don't submit or pay them on time, you lose the benefits of the system—and that can get expensive and complicated.

What are some typical target profit margins to aim for in e-commerce?

Max: In e-commerce, we often use a three-tier margin model:

Gross Profit – all purchase-related costs

Contribution Margin 2 – Selling Expenses

Contribution Margin 3 – Marketing Costs

As a rule of thumb, gross profit should be around 50 to 75 percent so that, after deducting distribution and marketing costs, there is still enough left to cover overhead. This business is extremely sensitive to margins. You really have to be careful about how you source, distribute, and advertise your products.

What are some common mistakes made when calculating margins?

Max: Very often, only the purchase price itself is considered, while costs such as inbound shipping, customs duties, or warehousing costs are left out. This significantly skews the COGS (Cost of Goods Sold). In addition, many companies lack the systems needed to accurately track complex journal entries and inventory valuations. As a result, margins at the end of the month are inaccurate.

How can companies establish best practices in this area to ensure transparent and reliable COGS?

Hanna: First of all , it’s important to have a clear understanding of inventory movements and delivery times. If the goods arrive within a few days, it’s easier. If transportation takes months, COGS fluctuate significantly. That’s when inventory valuation plays a major role: Which purchase prices should I use? Just the most recent one, or a weighted average? And are the numbers even accurate? A good system provides reliable figures at the end of the month that don’t constantly fluctuate wildly.

What are your top tips for e-commerce entrepreneurs who want to streamline their financial processes?

Max: Don't neglect this issue! Make sure to bring in qualified experts early on—whether that's an experienced tax advisor or a CFO. Don't overestimate your own abilities, because e-commerce financial management is very complex.

Hanna: I couldn't agree more . Communication within the company is also crucial: Finance teams must work closely with Marketing, Operations, and Product Development to ensure that all tax and financial considerations are identified in a timely manner. That's the only way to achieve long-term success.