Accounting
What Is Depreciation (eCommerce)?
Depreciation spreads the cost of a long-lived asset across its useful life rather than expensing it all in one period. For ecommerce brands the most common assets are warehouse fit-outs, machinery, and owned software. Getting depreciation right protects your gross margin from one-off capital spikes and keeps unit economics honest.
Depreciation is the accounting mechanism that spreads the cost of a capital asset over its useful life. It's a real economic cost but not a cash cost in the period booked, which is exactly why EBITDA excludes it.
How depreciation works
You spend $140K on warehouse picking equipment. GAAP (Generally Accepted Accounting Principles) useful life: 7 years (straight-line method). Annual depreciation = $20K/year for 7 years. The full $140K hits the cash flow statement in year 1; only $20K hits the P&L each year.
Common DTC depreciation schedules
- Warehouse equipment: 57 years
- Office equipment / IT hardware: 35 years
- Leasehold improvements: shorter of useful life or remaining lease term
- Capitalized software (internally developed): 35 years
- Vehicles: 5 years
The most common mistake
Confusing depreciation with cash outflow. Depreciation is a non-cash accrual entry, the cash already went out when you bought the asset. When reading a P&L, depreciation reduces operating margin and net margin but doesn't reduce cash. That's why EBITDA (which adds back D&A) is closer to operating cash flow.
Frequently Asked Questions
is depreciation a real cost?
Real economic cost (assets wear out) but not a cash cost in the period booked.
depreciation vs amortization?
Depreciation for tangible assets; amortization for intangibles. Same mechanic.
why do most ecom brands have small depreciation?
DTC is asset-light. CPG with manufacturing has materially more.
Related Terms
Browse the full ecommerce finance glossary for every metric and money term a DTC operator needs.
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