Profit & margins
What is a P&L statement?
P and L stands for profit and loss. A P&L statement, also called an income statement, summarizes a business's revenue, costs and profit over a period such as a month or a year. For an online store, it runs from sales at the top, through product and operating costs, down to net profit at the bottom.
What a P&L shows
A P&L answers one question: did the business make or lose money over this period, and where did the money go?
It's built in layers, each subtracting another type of cost:
- Revenue: sales, after discounts and returns.
- Cost of goods sold: what the products you sold cost you.
- Gross profit: revenue minus COGS.
- Operating expenses: ads, shipping, fees, apps, staff and rent.
- Operating profit: gross profit minus operating expenses.
- Interest and taxes.
- Net profit: the bottom line.
A line-by-line ecommerce P&L
Example P&L: one month for a Shopify storeExample numbers
| Line item | Amount | % of net revenue |
|---|---|---|
| Gross sales | $52,000 | |
| Discounts | −$3,000 | |
| Returns and refunds | −$2,000 | |
| Net revenue | $47,000 | 100% |
| Cost of goods sold (landed cost) | −$19,000 | 40.4% |
| Gross profit | $28,000 | 59.6% |
| Ad spend | −$8,000 | 17.0% |
| Shipping and fulfillment | −$4,200 | 8.9% |
| Payment processing fees | −$1,400 | 3.0% |
| Apps and software | −$600 | 1.3% |
| Salaries and contractors | −$6,000 | 12.8% |
| Other overheads | −$1,200 | 2.6% |
| Total operating expenses | −$21,400 | 45.5% |
| Operating profit | $6,600 | 14.0% |
| Interest | −$200 | |
| Taxes | −$1,300 | |
| Net profit | $5,100 | 10.9% |
Showing each line as a percentage of net revenue makes it easy to spot which costs are growing faster than sales.
Download a free P&L template
The template has the P&L above for three months plus a quarter total. Bold rows and margins are live formulas, so you only fill in the input lines.
Ecommerce P&L template
Free template with example numbers. Replace them with your own.
How to read your P&L
- Start at gross margin. If it's falling, look at discounts, supplier costs and product mix.
- Then look at the biggest operating costs. For most online stores that's ads and shipping. Compare them as a share of revenue month to month.
- Check operating margin for the store's core economics. The guide to operating profit vs net income explains the difference.
- Compare like with like. Compare a month with the same month last year where your sales are seasonal.
Common P&L mistakes
- Putting inventory purchases on the P&L. Stock is an asset until it sells; only the cost of what you sold goes into COGS. See P&L vs balance sheet.
- Recording gross sales as revenue. Discounts and refunds come off first.
- Leaving out landed costs. Freight and duties belong in COGS.
- Mixing up months. Ad invoices and shipping bills should be matched to the month of the sales they relate to.
For the formulas behind each line, see the net profit formula and how to calculate COGS.
FAQ
What does P&L stand for?
Profit and loss. A P&L statement, also called an income statement, shows a business's revenue, costs and profit over a period of time.
How often should I prepare a P&L?
Monthly. A monthly P&L shows trends early enough to act on them, and adding three months together gives you a quarterly view.
Is a P&L the same as a cash flow statement?
No. A P&L shows profit, matching costs to the sales they relate to. A cash flow statement shows when money actually moved in and out. Buying inventory, for example, uses cash straight away but only appears on the P&L as COGS when the stock sells.
Can I build a P&L from Shopify?
Partly. Shopify's reports give you sales, discounts, returns and, if you've entered product costs, gross profit. Operating expenses such as ad spend, apps, staff and rent come from your other accounts, so most stores combine Shopify data with their accounting software.