What is profitability, ROI and ROCE and how do they help evaluate business efficiency on marketplaces?

Profitability, ROI and ROCE are three key metrics that show whether a marketplace business is not just selling, but actually earning and using money efficiently.

What is profitability in simple terms

Profitability is the share of net profit in your revenue. It answers the question: how much net profit remains from each ruble of sales.

Formula:

Profitability = Net profit × 100% / Gross revenue

Example: Monthly revenue is 1,000,000 RUB, net profit is 150,000 RUB.

Profitability:

150,000 / 1,000,000 × 100% = 15%

That means from every 1 RUB of revenue, you keep 0.15 RUB of net profit.

What profitability gives a seller:

shows how profitable the business is overall;

helps compare the margin of different products and categories;

allows you to track trends: whether profitability is rising or falling month over month.

However, profitability does not indicate how much money had to be invested to earn that profit. Two products can have the same profitability, but one requires much more investment than the other.

What is ROI and why does a seller need it

ROI (Return on Investment) is the return on investment. It shows how much net profit each invested ruble generates.

General formula:

ROI = Net profit × 100% / Total investment

Example: You invested 500,000 RUB in purchasing and selling a batch of goods (purchase, logistics, commissions, advertising, etc.). Net profit is 100,000 RUB.

100,000 / 500,000 × 100% = 20%

This means that for every ruble invested, you earned 0.20 RUB of net profit.

Where ROI is useful:

evaluating the effectiveness of a specific product;

comparing ad campaigns with each other;

analyzing the payback of purchases;

analyzing new categories and business directions.

Difference from profitability: Profitability compares profit with revenue, while ROI compares it with costs. A profitable product can have a low ROI if it requires large investments that pay off poorly.

What is ROCE and its value for a seller

ROCE (Return on Capital Employed) is the return on capital employed. This metric shows how efficiently the money invested in a product and its related expenses is used.

For a marketplace seller, ROCE is especially important because:

a large portion of capital is tied up in inventory;

a slow-selling product "freezes" money, even if it is profitable;

fast turnover with acceptable profit yields a high ROCE.

The meaning of ROCE for a seller:

shows how profitable it is to invest money in a specific product;

helps assess how quickly invested capital starts to return and generate profit;

allows you to choose not only "high-margin" but also "fast" products that efficiently turn over capital.

What is the difference between profitability, ROI and ROCE

All three metrics are measured in percentages, but they answer different questions.

Metric	What it shows
Profitability	What portion of revenue remains as net profit
ROI	How much profit each ruble of total expenses generates
ROCE	How efficiently funds invested in a product and its related expenses are used

Example situations:

A product with high profitability but low sales speed: you sell each unit profitably, but capital turns slowly — ROCE and ROI may be lower than desired.

A product with moderate profitability but high turnover: each unit brings less profit, but products sell quickly and free up cash — the total earnings over a period and ROCE may be higher.

The conclusion: analyzing only one metric can lead to mistakes in managing assortment and pricing.

Why metrics should be viewed together

For an adequate assessment of a marketplace business, these three metrics are best considered together:

Profitability answers the question of "markup" relative to revenue — how profitable sales are in principle. ROI shows whether all costs of selling a product, including commissions, advertising, logistics, etc., have been recouped. ROCE shows how efficiently capital is employed: whether money is sitting idle in a slow-moving product without returns.

By combining them, a seller:

sees not only profit but also the cost at which that profit is obtained;

understands which products tie up too much money with weak returns;

makes decisions on pricing, advertising, restocking, and delisting products based on numbers, not just on revenue and order volume.

In the Torgstat service, you can track profitability, ROI, and ROCE metrics in one interface for making effective decisions.

Frequently asked questions

How is ROI different from ROAS?

ROI shows how much net profit each ruble of investment generates, considering all expenses: product cost, commissions, logistics, advertising, taxes, etc. ROAS (Return on Advertising Spend) only evaluates the effectiveness of advertising investments.

Which metric should be used to evaluate products on marketplaces?

To understand how profitable a product is, look at profitability. To assess whether all costs of selling a product are recouped, use ROI. To understand how efficiently money invested in a product and external expenses is used, focus on ROCE. Most often, sellers combine all three metrics.

Why does high revenue not guarantee high profit?

Because as revenue grows, expenses can also increase:

marketplace commissions;

logistics and storage;

internal and external advertising;

taxes;

returns and defects.

Can ROI be negative?

Yes. A negative ROI means that expenses exceeded profit, resulting in a loss.

What expenses should be considered when calculating ROI?

For a correct ROI, all major costs associated with selling a product should be considered:

cost price;

marketplace commissions;

logistics;

storage;

internal and external advertising;

taxes;

other external expenses.