Profitability has become the major challenge of modern eCommerce. What was once a sector driven by growth at all costs now faces a new reality: profitability is the true challenge. With increasing acquisition costs, the need to optimize margins, and ever-growing competition, brands must rethink their strategies to not only sell more but to do so sustainably. But how can this be achieved? Which key metrics truly matter? How can business balance growth with healthy profitability?
To answer these questions, we spoke with Thomas Gleeson, CFO and co-founder of StoreHero. With over two decades of experience in retail DTC (Direct-to-Consumer) and a crucial role as Merchant Success Manager at Shopify, Thomas has been at the forefront of the digital transformation of online commerce. Now, through StoreHero, he is helping brands enhance their financial strategy in an increasingly challenging landscape. In this interview, he shares his insights on how eCommerce can optimize profitability, avoid common mistakes, and prepare for the future of the sector.
For those who are not familiar with StoreHero, how would you describe its value proposition in a few words?
StoreHero is the AI Profit and Forecasting platform for eCommerce brands. At StoreHero we centralise eCommerce, marketing & finance operations to help brands focus on their profitability.
From your experience at Shopify to the founding of StoreHero, what lessons have most influenced your journey in the world of eCommerce?
At Shopify, I worked closely with brands between 5-150m of annual revenue, this was an incredible opportunity for me. Whilst this was great, there was always so much of the picture I was missing – costs, profits and so much more.
I perceived that lack of a combined system to holistically view your data as a blindspot and that is what we’ve built at StoreHero.
What motivated you to co-found StoreHero? How did the idea come about?
The StoreHero journey was almost 20 years in the making. I grew up in Ireland with a family DTC business. From a young age we learned about the pains of broken checkouts, learned about bounce rates and PPC!
Our family business was primarily built through SEO, but in 2014 I began to run some paid advertising for my parents business! My father is an accountant, was frustrated that I was now paying for sales the SEO used to bring us for free. I used to counter to him that the ROAS was really strong, but accountants don’t understand ROAS, and so he was really reluctant to give me more money to spend.
I began to build out all of these spreadsheets each week, combining the eCommerce, marketing and finances of our business to show him that I was generating more profit, not just sales for the business. It was only when I started doing this, I realised that he was right – ROAS was not the full picture.
During this time I started a number of brands and spent 3.5 years working at Shopify. The motivation to work at Shopify for me was to be able to immerse myself in the Shopify ecosystem to learn from the best to then leave and establish my own DTC business. I worked as a Senior Merchant Success Manager, helping founders of some pretty big businesses with everything from Shopify roadmap, ecommerce & marketing strategy – honestly it was my dream role.
I began showing the spreadsheet I had built for my parents business to some of these founders, and it turns out the disconnect between marketing and finance was not confined to the kitchen table of our house.
I left Shopify to co-found StoreHero with Karl O’Brien in December of 2022 and it’s been a wild ride ever since!
In a sector as dynamic as eCommerce, what do you think defines a truly profitable business today?
Great Question! Honestly, it’s really a binary answer here. Do your unit economics support the business that you’re running? Ecommerce has morphed from a largely marketing based play, to a numbers game wrapped in a finance cloak – the best businesses understand this and it’s why they’re thriving.
The fascination and focus of ROAS has unfortunately bred some poor habits into the industry. Marketing is now the heaviest line of the entire P+L, yet many people in charge of these budgets can speak fluidly on attribution models but fail to understand the financial implications of the overarching business strategy – that will be the biggest shift coming for the industry.
Many eCommerce prioritize growth over profitability. Where do you think the balance between these two factors lies?
Cash! It really depends on the cashflow that your business is generating, if you’ve got a lot of funding, or deep pockets starting out – taking market share is going to be priority number one. In this instance, profitability plays second fiddle and is less important.
While these companies often get all the headlines, they represent less than 1% of the DTC market. Trying to emulate the strategies or business model that these businesses run can lead you astray if you’re trying to grow a profitable business.
What are the most common mistakes brands make when trying to improve their profitability?
A decent ecommerce business does anywhere from 8-15% net profit. It’s a relatively thin margin operation. However, the vast majority of DTC brands today are still laser focused on revenue and ROAS, neither of which take into account the cost of doing business.
If your primary goal is to build a profitable business, we need to understand how we make sure we’re tracking this daily, and it needs to be explicitly understood by your team . Lets say we’re going for a €100,000 this month in revenue, we’ve got 4 days to go until the end of the month but we’ve got 25% of the revenue to do. What happens? If everyone is solely responsible for hitting the revenue target, we could be in a position where we introduce sitewide discounts combined with heavily increased ad spend – you’ll hit your revenue milestone, but you may have lost a lot of margin and profitability.
In summary, having everyone aligned on goals other than revenue and ROAS is critical, if this is not part of your weekly meeting, it should be .
Profitability often lies in the details: are there metrics or KPIs you consider essential but that often go overlooked?
Absolutely! The most important metric we help brands understand in depth is the Contribution Margin.
The Contribution Margin represents the remaining profit after deducting marketing expenses, and it is what truly helps cover operational costs and generate profitability.
Unlike metrics like ROAS or revenue, this number cannot be manipulated by the attribution windows of advertising platforms, making it a more accurate metric to understand how changes in marketing spend affect real profitability, not just total revenue. We have explored this topic in-depth here.
Sure, the main number we want to help brands get a firm handle on is Contribution Margin.
Contribution Margin, is essentially your profit after your marketing spend, that contributes to covering your operating costs and making a profit.
This number cannot be gamed by attribution windows from various platforms and is a true view at understanding how increases or decreases in marketing spends affect your actual profit, not just your overall revenue.
We have explored this topic in-depth here.
In recent years, many brands have bet on the DTC model. What are its main advantages and challenges from a financial perspective?
Yes, going back to the DTC angles like Dollar Shave Club and more the main selling point of DTC was that we bypass the middleman that we typically see with physical retail to sell Direct To Consumer.
Whilst this is still true today, Meta/Google have essentially become the world’s biggest middleman! Today an average DTC business is spending anywhere from 15-40% of their revenue on marketing costs. This is enormous!
The financial advantages of this model were that you didn’t need a physical presence and you could sell to the world, in some respects ad platforms have become the world’s largest collector of online rent as millions of DTC brands seek to reach their customers in new markets.
With the rise in acquisition costs, what strategies can eCommerce adopt to improve their margin without relying so heavily on advertising?
Great question. The cost to acquire customers is only going north. For brands to survive and thrive in 2025 and beyond we need to think about the types of products we sell and how we sell them. If the cost to acquire customers is going up, we need to make sure we’re thinking about the repeatability of customers for new product development. If you’re in a space like pet food, you can afford a really high customer acquisition cost if the customer comes back each month. Secondly, we must truly understand our gross margin. Are we being too generous with discounting? Are we charging for shipping when we need to? Are we giving free returns when we shouldn’t be? Brands should conduct and full and thorough study of their marginal costs, ie the costs that get applied each time an order is fulfilled and ask themselves where can they become more efficient. We’ve looked at over 400 stores on StoreHero, and 90% of brands are really leaving money on the table when it comes to not fully understanding these marginal costs.
We talk a lot about acquiring customers, but how important is recurrence in the profitability of an eCommerce? Any recommendations to improve it?
Yep, with the cost to acquire customers going north, ensuring your retention is fully dialled in is really important. We could do 5 hours on this topic alone!!
First and foremost, a brilliant product is going to be the main lever to increase your retention – it sounds basic but it’s so true. When you’re thinking about new product development, try to think about products we can introduce that have a component of repeatability in them – this will make a massive difference.
Finally you’ve got some marketing pieces like ensuring your email marketing is fully dialled in and that you’re collecting enough feedback from your customers.
Do you see emerging trends that brands should closely follow in the coming years?
I think every DTC brand is in this position where they’re worried about how much they spend on advertising, and they also don’t trust the ad platforms to give them honest data.
If this is you, fix this fast – it will give you so much more confidence in your decision making.
AI tools are forcefully entering the management of online businesses. How do you think they will impact the optimization of profitability?
Sure, I think the main way we see this happening is going to be the reduction of operational expenses as a % of revenue. If brands are getting squeezed by rising CAC, the opportunity is a necessity to look for margin expansion in other areas of the P+L. AI represents a unique opportunity to provide this level of insight and efficiency.
Many brands are still using AI for menial tasks, but this will change profoundly over the coming years.
If you could give one piece of advice to a brand wanting to improve its profitability, what would it be?
What get’s tracked get’s measured!
First and foremost, understand your profitability in an ecommerce friendly dashboard like StoreHero. Ensure that your finance team or your accountant understand the basic principals of marketing (or hire a fractional CFO) and on the flipside your marketing agency is speaking to you about deeper metrics than simply looking at ROAS. They need to understand profitability, contribution margin and how their actions play into the overarching business strategy.
Looking to the future, how do you envision StoreHero in the next five years?
StoreHero will become the leading tool for DTC brands to grow profitably. We’ll do this by providing cutting edge insights and recommendations that are tailored to YOUR business and YOUR profit goals. Big things coming!
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