Why High Sales Don't Always Mean High Profit on TikTok Shop

There is nothing quite like the dopamine hit of a viral video. Your notifications are blowing up, the orders are flying in, and your dashboard revenue figure is climbing rapidly. You look at the top-line number and think you have cracked it.

But then you check your actual bank balance, and the numbers don't add up.

This is the single most common issue we see at Social Commerce Accountants UK. We work with brands doing six and seven figures on TikTok Shop, and I can tell you from experience: revenue is vanity, profit is sanity.

If you don’t have a grip on your TikTok Shop profit margin, you can sell £50,000 worth of stock and end up with less cash than when you started. The platform’s unique ecosystem of subsidies, vouchers, affiliate commissions, and complex settlement reports makes it incredibly easy to scale unprofitable sales.

Here is why high sales volumes don't guarantee money in your pocket, and how to fix it.

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The Real Cost of Selling on TikTok Shop

Many sellers, especially those moving over from Shopify or Amazon, underestimate the real cost of selling on TikTok Shop. They look at the base commission fee and assume that is their only overhead.

In reality, the cost structure is far more layered. When you look at a settlement report, it is rarely a clean transaction. You are dealing with:

• Platform Commissions: The standard cut TikTok takes.
• Affiliate Commissions: The % you pay to creators (which can range from 10% to 30%+).
• Shipping Fee Adjustments: Often, TikTok charges the customer one price for shipping but charges you a different (higher) rate, or you miscalculate the weight brackets.
• Voucher Subsidies: This is where it gets messy. TikTok often funds discounts, but the tax handling of these subsidies can be a nightmare if not recorded correctly in Xero.
• Unrecoverable VAT: If you aren't careful with how you register cross-border or handle dropshipping, you might be swallowing VAT costs you didn't account for.

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What This Means For You

If you are pricing your products based solely on the cost of goods sold (COGS) and a 5% platform fee, you are likely underwater. You need to factor in the "fully loaded" cost of every unit.

What are TikTok Shop hidden costs?

Hidden costs often include shipping discrepancies (where actual shipping exceeds the paid shipping), unclaimable VAT on fees if not invoiced correctly, affiliate commission stack (platform + creator fees), and return processing fees.

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TikTok Shop Fees for Sellers 2026

To stay profitable, you need to be working with current numbers. As we move through 2026, TikTok is maturing as a platform, and their fee structure is becoming more rigid.

While they aggressively subsidised fees in the early days to attract merchants, those days are fading.

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The Breakdown

• Base Commission: generally 5% (plus VAT) on the total order amount.
• Transaction Fee: A small percentage per transaction to cover payment processing.
• Affiliate Fees: This is variable. If you set an "Open Plan" at 15%, that 15% comes directly off your top line before the money hits your account.

If you are a high-volume seller, a 1% shift in fees can wipe out thousands in net profit. You must audit your fee structure monthly.

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Why Am I Losing Money on TikTok Shop?

If your sales are high but your bank account is empty, you are suffering from high revenue low profit syndrome.

Usually, this comes down to one of three things:

1. Aggressive Discounting: You are discounting to drive volume and ranking, but after fees and COGS, your margin is negative.
2. The Affiliate Trap: You offered high commissions to attract big creators. They sold thousands of units, which is great for brand awareness, but after paying them 20% and TikTok 5%, you made a loss on every single unit.
3. The "Creator" Accounting Black Hole: This is a specific issue for those acting as affiliates or creators selling their own merch via the creator tools.

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The Integration Software Gap

This is a massive pain point right now. For standard merchants, we can use tools to bridge TikTok Shop data into Xero.

However, integration software for creators/affiliates effectively doesn't exist yet.

If you are earning revenue as a creator or affiliate, there is no simple "Link My Books" style plugin that pulls that data cleanly into your accounting software. This leads to:

• Manual spreadsheet entry (prone to errors).
• Missing VAT on expenses.
• Losing track of exactly what you have been paid for versus what is held in reserve.

If you don't track this manually and accurately, you might be paying tax on income you haven't actually received, or missing expenses that could lower your tax bill.

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How to Calculate Net Profit on TikTok Shop

Stop looking at the "GMV" (Gross Merchandise Value) on your dashboard. It is a vanity metric. You need to look at your Net Profit.

Here is the formula we use for E-commerce unit economics:

Net Profit = Sales Price - (COGS + Shipping + Platform Fee + Affiliate Commission + Ad Spend + Overhead Allocation)

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A Real-World Example

Let's say you sell a skincare product for £20.00.

• COGS: £4.00
• Shipping: £3.50
• TikTok Fee (5%): £1.00
• Affiliate Commission (15%): £3.00
• Ad Spend (CPA): £5.00

Total Costs: £16.50

Net Profit: £3.50

Margin: 17.5%

If you decide to run a "20% off" flash sale without adjusting your ad spend or commissions, that £3.50 profit instantly becomes a £0.50 loss. You are paying customers to take your product.

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Is TikTok Shop Profitable for Small Business?

The short answer? Yes, absolutely. But it requires discipline.

TikTok Shop is not a "get rich quick" scheme; it is a volume game that requires strict margin control. For small businesses, the opportunity lies in organic reach. If you can create content that converts without heavy paid ad spend, your margins are significantly healthier than on Facebook or Instagram Ads.

However, if you are a small business relying entirely on paid ads and high affiliate commissions, you will likely struggle to find profitability until you have massive economies of scale.

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Summary

Don't be seduced by the revenue dashboard. Dig into the settlement reports, understand your true unit economics, and if you are a creator, be prepared to do the hard work on the spreadsheets until the software catches up.

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