64 terms

Every term on your P&L, in plain language.

Scoped to this product on purpose. These are the words a Shopify merchant meets on their own statement, which is why each one can say exactly where the number appears and what it is calculated from.

01 / 10

Margin and profit

The ladder from revenue down to what you actually keep.

Contribution marginNet revenue − variable costsWhat is left after the costs that move with each sale.Lines 19, 25, 29 CM1Net revenue − COGSNet revenue minus the cost of the goods you sold.Line 19 CM2CM1 − logistics − payment feesCM1 minus the cost of fulfilling the order and getting paid.Line 25 CM3CM2 − marketing costsCM2 minus advertising. The number an operator lives on.Line 29 EBITDACM3 − overhead costsProfit before interest, tax, depreciation and amortisation.Line 33 Gross margin(Net revenue − COGS) ÷ net revenueRevenue minus cost of goods, as a percentage.Line 20

02 / 10

Revenue and orders

What came in, and what was really yours.

GMVΣ original unit price × quantityGross merchandise value: every line item at its original price.Line 1 Net revenueGross revenue − returns − VATWhat you kept after discounts, returns and VAT.Line 14 Average order valueNet revenue ÷ net ordersRevenue divided by orders. The number per-order costs live off.Line 16 Discount rate(Price reductions + discount codes) ÷ GMVHow much of your list price you gave away.Lines 3, 5 Return rateRefunded value ÷ gross revenueThe share of what you sold that came back.Line 11

03 / 10

Costs

The kinds of cost that decide the bottom line.

COGSΣ unit cost × units sold − refund creditsCost of goods sold: what the products themselves cost you.Line 17 Logistics cost per orderEverything it costs to get one order to the customer.Line 21 Packaging EPRΣ material weight × scheme rate per kgThe fee schemes charge per kilogram of packaging you place on a market.Lines 21, 31 Transaction fees% of charged amount + fixed fee per transactionWhat the payment provider keeps from every charge.Line 23 ChargebackA payment reversed by the customer's bank, plus a fee.Lines 10, 23 OverheadMonthly × 12 ÷ 365 per day, or yearly ÷ 365Fixed costs as they appear on the statement.Line 31 Fixed costsThe costs you pay whether you sell anything or not.Line 31 True cost of a returnThe refund plus everything the refund does not give back.

04 / 10

Marketing

Measuring acquisition without inventing attribution.

MERNet revenue ÷ total ad spendMarketing efficiency ratio: net revenue divided by total ad spend.POASContribution margin ÷ ad spendProfit on ad spend: contribution margin per euro advertised.ROASAttributed revenue ÷ ad spendReturn on ad spend, as the platform counts it.CACTotal marketing spend ÷ new customersWhat it costs to win one new customer.Repeat rateRepeat orders ÷ total ordersThe share of orders that came from customers you already had.

05 / 10

Inventory

The money asleep on your shelf.

Inventory value at costΣ units on hand × effective unit costWhat the stock on your shelf cost you, not what you hope to sell it for.Stock coverageUnits on hand ÷ units sold per dayHow many days the stock you hold will last.Inventory turnoverCOGS ÷ average inventory at costHow many times you sell through your average stock in a year.

06 / 10

How a P&L behaves

The rules that decide whether a report can be trusted.

Daily P&LA profit and loss statement rebuilt for every single trading day.Break-even pointCumulative CM3 = fixed costs for the periodThe moment the month has covered its fixed costs.Effective datingA cost that applies from a date forward and leaves history alone.Recognition dateThe day an amount belongs to.

07 / 10

The statement, line by line

Every line between the ticket price and net revenue.

Gross revenueGMV - price reductions - discount codes + shipping revenueWhat was actually charged, before returns and before tax.Line 7 Price reductionsSum of (compare-at price - price) x quantity, never below zeroSelling below the ticket price without a code.Lines 2, 3 Discount codesSum of discount allocations on order linesCodes and automatic discounts, applied at checkout.Lines 4, 5 Shipping revenueWhat customers paid you for delivery.Line 6 Returns and refundsMoney handed back, on the day it was handed back.Lines 10, 11 VAT on a P&LVAT contained in (gross revenue - returns)The tax inside what you kept, which was never revenue.Lines 12, 13 Gross ordersOrders placed, before anything came back.Line 8 Net ordersGross orders - fully refunded orders, on the refund dateOrders that survived their refunds.Line 15 Gross AOVGross revenue / gross ordersAverage order value before returns and tax.Line 9

08 / 10

Ratios and unit economics

The figures a decision is actually held against.

Unit economicsWhether one order makes money, before anything is scaled.Variable costsThe costs that only exist because a sale happened.Lines 17, 27 Cost per orderWhat an order costs to serve, regardless of its size.Lines 21, 23 Contribution per orderCM2 / orders, or CM3 / orders when advertising is includedWhat one average order leaves after its own costs.Blended fee rateTotal payment fees / total gross charged volumeWhat payments really cost, across every gateway.Lines 23, 24 Landed cost(goods + currency + freight + insurance + duty + handling) / saleable unitsWhat a unit really costs to have in your warehouse.Line 17 Margin of safety(orders - break-even orders) / ordersHow much of the month could vanish before it stops paying.Break-even ROAS1 / contribution margin before advertisingThe return advertising needs simply to pay for itself.Payback periodCAC / contribution per order, converted to months at the observed repeat rateHow long a customer takes to repay what winning them cost.Discount depthDiscount / list priceHow far below list a promotion actually goes.Lines 3, 5

09 / 10

Inventory operations

Buying, holding and running out.

Reorder point(velocity x lead time) + safety stockThe stock level that should trigger a purchase order.Lead timeOrder placed to stock saleable, as observed.Safety stockThe cushion held against demand and suppliers going wrong.Sell-through rateUnits sold / units received, over the periodHow much of what you received has actually sold.Dead stockInventory that has stopped selling and keeps costing.StockoutDemand arriving at an empty shelf.BackorderSelling what you do not yet have.

10 / 10

Mechanics the engine is opinionated about

The cases where a rule had to be chosen, and why.

Split shipmentOne order that leaves in more than one parcel.Line 21 Partial refundMoney back on part of an order.Lines 10, 15 RestockingGetting a returned unit ready to sell again.Line 21 ProrationMonthly cost x 12 / 365 per daySpreading a fixed cost across the days it covers.Line 31 BackdatingGiving a cost an effective date in the past, on purpose.Catch-all zoneThe shipping zone that owns every country no other zone claims.Weight bracketsHow a carrier prices a parcel by the band its weight falls in.

Keep reading

Everything else we have written down.

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BlogHow margin actually behaves in an ecommerce business.Help centreConnecting, costing, syncing, billing. The short answers.TemplatesSix free spreadsheets with the columns nouz actually uses.CalculatorsBreak-even, margins, fees, MER and packaging EPR, on §8 maths.