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Hi there! 👋

In today’s issue, I’m going to show you how to review and analyze your profit & loss statement (P&L) and make practical decisions based on it.

If you review your P&L on a monthly basis, you’ll drastically improve your ability to make swift decisions that lead to a better result down the line.

You won’t be surprised by unexpected costs and you’ll get a better overall grip on your finance (which you need in a high competitive e-commerce market).

Unfortunately, most e-commerce managers don’t have a predefined way for doing this.

Learn how to analyze your P&L and you’ll become unignorable.

Let me show you my 4 step process for reviewing an e-com P&L statement.

Now, by no means I’m a financial guy, so don’t take this guide as the holy grail in financial management.

It is however, the very 4 step process I’ve used to turn loss into profitability.

Let’s dive in!

1. Revenue Analysis

We’re going to start by looking at our revenue streams.

You’re going to need your revenue numbers for the past 12-24 months. Looking back beyond the past 24 months is not useful; it will only create more work for you.

You want to ask yourself 2 questions:

1. What is the revenue contribution of each product category/brand to the total revenue?

   By understanding this, you can pinpoint which categories or brands are the most valuable to your business. This will help you allocate resources, like marketing efforts or inventory investment, more efficiently.

2. How have sales trends for each product category/brand changed over time?

   Looking at sales trends reveal patterns, seasonal fluctuations, or growth/decline trends. This is crucial for forecasting and planning inventory needs and promotional activities. It will allow you to make pro-active tactical changes.

2. Cost of Goods Sold (COGS) breakdown

Revenue is nice, but margin pays the bills. So after looking at your top line revenue trends, you need to dive into your margins. Analyzing your COGS is the next step.

Reminder: Cost of Goods Sold (COGS) is the sum of all expenses directly involved in buying the products you sell, such as material costs, transport, etc.

Again, we’re going to ask 2 questions.

1. What is the profit margin for each product category/brand?

   Understanding the profit margins of each category or brand is even more important than understanding your revenue. High-revenue categories with low margins might be less attractive than lower-revenue categories with higher margins.

2. How has my COGS evolved over the past 12-24 months?

   Rising COGS can have many, many reasons. The price of raw materials can go up, but you can also miss the buy-in target at your supplier or change the product mix. If you make 50% margin on brand X in 2022 and that same brand does 40% in 2023, that’s where you want to take a closer look at.

3. Operating Expenses (OPEX)

After reviewing your revenue and COGS, you dive into your operating expenses. This is - in my opinion - the most important part.

Slowing sales isn’t what kills your business.

Rising costs are.

And your OPEX is the place you’ll find the silent killers.

Now, most important thing is this step is to realize that - as an e-commerce manager - you don’t have control over the complete OPEX.

• You’re not going to impact Depreciation

• You’re not going to impact Housing costs

• You’re not going to impact Management Fees

However, you can impact selling expenses and IT expenses.

We’re not going to fully deep dive into OPEX optimization (that could be a 4 year degree on it’s own), but I’m going to share with you what I did to improve OPEX the past 12 months.

• Cut down Google Ad spend.

• Cut off most of 3rd party agencies.

• Review all retainer deals you have running.

• Cut all paid channels that didn’t bring in proven profit.

• Review all of your marketing tooling, do you really need it? If not, cancel contract.

Bonus tip: never ever sign a multiyear deal to be $5 a month cheaper.

Bonus tip2: never ever sign a contract with auto-renewal. It should always be an auto-stop contract. The other side will contact you when end of contract is in sight.

4. Practical Actions

After analysing your P&L, think of:

• Cost Reduction: Identify areas where you can cut expenses without impacting customer experience.

• Revenue Growth: Define strategies to increasing sales, like expanding into new markets or optimizing pricing strategies. Be aware: expanding product range might be the most logical way to add revenue. It is also the fastest way to spiral out of control.

• Operational Efficiency: Look for ways to improve operational processes to reduce costs and increase margins.

Reviewing your P&L might seem daunting. But I’ll guarantee that it will give you insights you’ll otherwise overlook (at least, I did for 6 years).

That’s it for today. Have a great Sunday.

Erik

Whenever you’re ready, there are three ways I can help you.

1. Interim E-Commerce Management: I run, scale & optimize your e-commerce business.

2. Resource Library. Useful resources for every marketeer. Includes an E-Commerce Audit Report, ChatGPT Prompt Guide & Midjourney Masterclass.

3. Book a 1:1 Call. A No Bullshit 20 min Ask Me Anything call. If you’re facing challenges in online business, I’m happy to talk.

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