What is P&L?
Transitioning from brick and mortar to an ecommerce business brings with it a whole lot of new avenues to grow and increase your revenue.
Along with that comes a list of expenses that you need to be accounting for from day one.
Whatever said and done - every business is in it for the profit!
To be a successful business owner, you need to have a good understanding of your business finances. More importantly, you need to be tracking your numbers.
At the root of it, P&L or rather a Profit & Loss statement is nothing but a report card of your online venture. The P&L statement tells you just how much revenue you are left with after deducting all the expenses incurred for your products’ sale.
Nope, a P&L statement is not the same as a balance sheet. A balance sheet pulls up the debts and assets of your ecommerce business. In contrast, a P&L report shows you the revenue and expenses of your business over a specified time period - say monthly, quarterly, or even yearly in some cases.
In other words, it lays out how well your business has been fairing and what are the problem areas (read: overheads) that you need to be worrying about.
How do you calculate P&L for your ecommerce business?
When you’re in the ecommerce line of business, it’s essential to keep your business’s pulse in check, and this can be done by reviewing your profits and losses every month.
Let’s now get down to calculating the profits and losses of your online business.
First, you will need to add up all the revenue or incomes earned in a month and similarly sum up all the expenses incurred in a month. Then just go ahead and calculate the difference between the two.
It’s as simple as this: Profits = Revenue - Expenses.
On the contrary, when you have your expenses shooting up way beyond the revenue earned - this means that your business is sadly operating at a loss. To get your business back on track, you will need timely strategies to help you increase the money earned from sales.
What incomes & expenses should you consider for your store’s P&L statement?
Now, let’s look at the incomes and expenses you need to factor in to arrive at either profits or losses.
Under incomes, you need to account for:
- The sale of your products or services online
- Additional funds such as interest earned on savings at your bank
Coming to the expenses, here’s what you need to consider:
- Cost of goods sold: These are the direct expenses related to the sale of your online products/services, such as freight costs
- Any discounts that you offer your customers
- Fixed expenses: These are expenses that remain constant even when your sales increase, such as rent and utilities
- Variable expenses: These expenses are bound to change based on the sales you make, such as delivery charges or advertising costs
How can you maximize profits for your online store?
By now, we’ve established how keeping a close watch on your P&L statement is critical for the success of your ecommerce store.
When it comes to making money from your online venture, it goes way beyond setting up a store online and taking in orders. With ecommerce sales estimated to touch $4.9 billion by 2021, here are a few tips to help you get your share of this and increase your online sales.
- Go all out with marketing: Since your store is online, your best call is to take a digital marketing approach to draw in customers.
- Keep the right inventory level for your store: Track your Days of Supply and know precisely when you need to stock up.
- Service your customer right: This is an area that you cannot leave out. Offer your customers an experience they will love with DelightChat - a top-notch customer support tool designed for ecommerce businesses like yours.
A company’s success is determined by the profits & losses it’s incurring over its lifetime. Make sure you keep an eye on this at all times.