The cost mistake that makes your margin look ten points better than it is
If you bought the same product three times at different prices, there is no single "cost" for that product. There are three, and the margin you see depends on which one your system picked. In a real case I’ll break down below, the same SKU sold at the same price shows 35%, 29%, or 17% margin, depending only on the cost used. That’s an eighteen-point difference between the best and worst cost, with nothing changing in your operation. In a real store, the error is usually about ten points, and I’ll show a case below.
This is the most silent margin mistake in marketplaces. Someone will notice a wrong fee. A wrong cost can go years without anyone noticing, because the number still looks reasonable.
#The three costs of the same product
Imagine a SKU bought in three batches during the year: 100 units at R$ 20 in January, 100 at R$ 24 in March, and 50 at R$ 31 in September. You have 250 units in stock.
The first purchase cost is R$ 20. That’s the number most people remember, because it was the first and it stuck.
The weighted average cost is R$ 23.80, which is the total paid divided by the total units. This is the accounting cost for each unit that leaves your stock today.
The replacement cost is R$ 31, because that’s what you’ll pay to buy the next one.
Now sell this unit for R$ 59.90 on Mercado Livre, with a 12% commission, 800-gram package, and 6% tax, not counting packaging:
| Cost used | Product cost | Profit per sale | Margin |
|---|---|---|---|
| First purchase | R$ 20.00 | R$ 21.17 | 35,3% |
| Weighted average | R$ 23.80 | R$ 17.37 | 29,0% |
| Replacement | R$ 31.00 | R$ 10.17 | 17,0% |
Same sale. Same fee. Three answers.
#So which cost should you use?
It depends on the question, and that’s the part almost no one separates.
To know how much you made in a period that’s already over, use the cost that was valid on that date. The order from June used a unit bought before June, and that’s the cost that should show in June’s result. If you update the cost in the product record and the system recalculates old orders, your history changes by itself, and then you can’t trust any report.
To decide what price to charge tomorrow, use the replacement cost, or the weighted average if the difference is small. The next sale will use a unit you’ll need to replace at today’s price. Pricing with January’s cost is selling cheap without knowing it.
If you’re unsure between weighted average and replacement, stick with weighted average while the batches are similar and switch to replacement when the supplier jumps, like from R$ 24 to R$ 31 in the example.
In practice. A tool store found that 62% of SKUs were still using the cost from when the product was first added, some from two years ago. The average margin they reported was 31%. After updating the costs, it dropped to 22%. No customer, listing, or fee changed. Only the number became true, and then they could act.
#The worst case: the SKU with no cost at all
This is more common than it seems, especially in stores that imported a catalog from a spreadsheet or connected the account and never went back to complete the product records.
When a product has no cost, the system has nothing to subtract. Its margin shows up as almost all profit. If this product sells well, it pulls the average margin of the whole store up and makes a sick catalog look healthy.
The test is quick: check how many of your SKUs that sold last month have no cost registered. If it’s over 10%, no margin report from your store means anything yet.
#Where to start if everything is outdated
Don’t try to fix the whole catalog. Sort your SKUs by revenue from the last 90 days and fix the top twenty. In most stores, these twenty account for more than half the revenue, and fixing them already changes everything.
After that, make it a habit to record the cost at the time of purchase, with the date. That’s what lets you answer both questions separately without making anything up.
If you want to test how a cost change affects the ideal price of a product, the profit calculator runs this simulation. And inside Milewa, the cost is entered with the effective date, so old orders keep the old cost and today’s pricing uses today’s cost. They’re two numbers, not one, exactly as they should be.
#Frequently asked questions
What is weighted average cost and why does it matter for marketplace sellers?
Weighted average cost is the average acquisition cost of all the units you have in stock, weighted by the quantity in each batch. It matters because if you buy the same product several times at different prices, you don’t have a single cost, and using the price from one specific batch distorts the margin of all orders.
Should I recalculate the margin of old orders when the product cost changes?
Not to know how much you made. The result for June must use the cost that was valid in June, or you rewrite the past. But to set today’s price, use the current cost, because the next sale will use the unit you bought at the new price. They’re two different questions and each one needs a different cost.
What happens when a SKU has no cost registered?
The margin for that product shows up as almost all profit, because the system has nothing to subtract. In a store with many SKUs, these items with no cost pull the average margin of the whole store up and hide the products that are actually losing money.
#Sources
Marketplace fees change. The numbers in this article are valid for the period mentioned — before setting your price, check the current table in your account.
Want to see these numbers with your own data?
Milewa pulls your orders from Mercado Livre and Shopee, applies commission, shipping, tax, ADS, and your cost, and shows the margin for each order and each SKU. You can start with the calculator and then connect your store.