Key Points for Shopify Sellers:
Profit & Loss Statements for Shopify Businesses:
Like Amazon sellers, Shopify businesses benefit from creating Profit and Loss (P&L) statements.
P&L statements offer insights into revenue, costs, and expenses, aiding strategic decision-making.
Terminology for Shopify P&L Statements:
Sales Revenue: Total income from product sales before any deductions.
Net Sales Revenue: Earnings after deducting discounts, returns, and additional costs.
Cost of Goods Sold (COGS): Total expenses associated with producing or purchasing products.
Operating Costs: Fixed and variable costs necessary for business operations.
Gross Profit: Net sales revenue minus COGS.
Net Profit/Net Income: The actual profit after deducting COGS, taxes, debts, and operating expenses.
Creating a P&L Statement for Shopify:
Establish an income and expense tracking sheet to monitor monthly financial activities.
Retrieve net sales revenue data from Shopify's reporting tools.
Calculate COGS, gross profit, and operating costs to determine the operating profit.
Calculate net income by subtracting taxes from the operating profit.
Analyzing P&L Statements for Shopify Businesses:
Monitor month-on-month sales revenue to identify growth patterns and determine contributing factors.
Analyze COGS to explore opportunities for cost reduction, such as negotiating with suppliers.
Calculate profit margins to optimize costs and enhance overall profitability.
Conclusion:
Shopify sellers should regularly create and analyze P&L statements to gain a comprehensive understanding of their business's financial performance. This practice enables informed decision-making and the implementation of strategies for sustained growth and increased profitability.