Good vs. Great P&L for Shopify Merchants [with Examples]
What’s the difference between a good P&L and a great P&L for your Shopify store? In this video, Geoffrey from A2X is joined by Simon Davis and Carl Hill from SBO Financial to break it down.
You’ll learn how to transform your profit and loss statement from a basic report into a high-impact business tool. Plus, the team shares real examples of default, good, and great P&Ls, and how to use contribution margin to drive smarter decisions around discounting, marketing, and profitability.
00:00 – Introduction to A2X and SBO Financial
01:02 – Why a good P&L is essential for Shopify merchants
01:53 – What makes a great P&L: Definitions and value
03:11 – Comparing a default, good, and great P&L
05:04 – Behind the scenes: Chart of accounts and accurate bookkeeping
09:11 – Real-world use of a great P&L: Identifying margin drops
12:32 – P&Ls for business insights, not just tax compliance
14:00 – How often to review your P&L
14:56 – SBO’s advisory process and added insights
16:10 – Real client story: Fixing a $300K gift card liability issue
17:38 – Building trust in your numbers
20:24 – Contribution margin: What it reveals about sales and marketing
23:08 – Final takeaways and how to get expert help
The information provided in our videos and resources is meant to be general in nature. Please consult a certified expert to get advice for your specific business requirements.
Key Takeaways
What Makes a “Great” P&L for Ecommerce?
Not all P&Ls are created equal.
The “default” P&L setup in your accounting system might just tell you top-line sales and net profit – but a P&L designed specifically for your ecommerce business can help you:
- Measure and optimize gross profit and contribution margin
- Isolate performance by category, SKU, or region
- Understand the impact of discounts, shipping, and ad spend
- Catch costly accounting errors
With the right structure and data, your P&L becomes a scorecard – not just a compliance tool.
Default vs Good vs Great P&L – What’s the Difference?
Carl walked us through three practical examples of P&Ls for ecommerce businesses.
- Default P&L – Basic output from accounting software; provides limited insight for ecom brands.
- Good P&L – Breaks out income, discounts, COGS, merchant fees, customer acquisition cost.
- Great P&L – Adds contribution margin, separates data by category or geography, and helps surface real business insights (e.g. underperforming SKUs or over-discounting) – numbers that are necessary for ecommerce businesses to understand.
How to Build a Great P&L
Simon explains that it all starts with your chart of accounts and consistent bookkeeping practices:
- Break out revenue into gross sales, discounts, returns, fees, and gift cards
- Treat inventory as an asset – not an expense
- Match COGS with sold inventory, not just purchases
- Use A2X to automate and categorize transactions correctly
Real Example: The $300K Gift Card Mistake
One Shopify merchant was mistakenly recognizing gift card sales as income.
When SBO restructured their reporting, they uncovered:
- $300,000 in liability that should’ve sat on the balance sheet
- Approx. $30,000 in recoverable tax (GST + income tax)
- A major improvement in cash flow visibility
The idea that accurate data can help your business may sound “fluffy”, but a well-structured P&L turns that idea into actionable insights you can actually use to spot errors and grow profitably.
Why Contribution Margin Matters
Contribution margin = gross profit minus customer acquisition cost. It tells you:
- If your ad spend is efficient
- Whether your discounting is paying off
- How each category or region is actually performing
Without it (i.e., it’s not included on your P&L), it’s challenging to understand profitability.
📅 How Often Should You Review Your P&L?
Monthly. No less.
That’s the cadence SBO uses with all clients to:
- Spot trends
- Review against forecasts
- Avoid information overload
Shopify merchants are time-poor – a clean, automated P&L makes it easier to engage with the numbers you can trust.
🔁 TL;DR – To Get a Great P&L:
- Build a clean chart of accounts
- Structure your P&L for ecommerce – break out sales by category or region, separate discounts, returns, merchant fees, and clearly show contribution margin to surface actionable insights
- Automate with tools like A2X (income) and your IMS (inventory)
- Work with a partner like SBO Financial who knows ecommerce
- Review your reports monthly – and use them to drive real decisions
Transcript
Geoffrey (00:00)
Hey everyone, my name is Geoff and I’m the Head of Marketing at A2X, ecommerce accounting automation software for the world’s leading Shopify, Amazon, eBay, Etsy, and Walmart sellers, as well as their accounting partners. And speaking of accounting partners, I’m joined today by Simon and Carl from SBO Financial. SBO Financial is a full-service accounting practice based out of Australia. They specialize in working with fast-scaling ecommerce businesses, and we’re so lucky to have them here today.
to share their expertise with us.
Simon and Carl, thank you so much for joining us here today. I hope I did my description of SBO Financial Justice, but if I might have missed anything or if you want to talk about the type of businesses you work with, now’s your time to shine.
Simon Davis (00:43)
Thanks Geoff, appreciate the invite and good to be here. ⁓ We’re a remote first asynchronous accounting firm based in Australia as you said. We’ve been around for, we’ve just ticked over 10 years now but with a commerce businesses anywhere from one mill to 10 million revenue sometimes upwards of that. I’m offering the full suite of accounting services.
Geoffrey (01:02)
If you are looking for accounting services for your Shopify store, the SBO Financial team is an amazing option. We’ll put a link in the description below in terms of how you can reach out to them and we’ll take it from there.
All right, so let’s get right into it. In this video, we’re gonna talk about building the perfect profit and loss statement, otherwise known as P&L, for scaling Shopify merchants. We’re gonna cover what a great P&L looks like, how to get accurate data into your P&L, and then how to read your P&L and generate insights so that you can make informed decisions.
Carl, so I’m gonna start with you. To help frame this discussion, let’s level set because I know we might have some newer Shopify merchants watching the video. What is the definition of a great P&L and why is it so important for scaling Shopify merchants?
Carl (01:53)
So a P&L is where you find out how much money you’ve made in a period of time, whether it’s a month, a year or a quarter. ⁓ It’s very important. It’s probably the key financial statement business owners will look at because everyone wants to know how much sales they made and how much profit they made as well. But a great P&L can tell you so much more than that. It’ll tell you your gross profit. It’ll tell you how efficient you’re selling
your products and it’ll give you insight into how your ads are performing as well and how your business is performing and generating profit. You can get a lot of insights out of a P&L if you structure it properly.
Geoffrey (02:31)
Nice, I love that. In a recent discussion with another A2X partner, they said that the P&L was the scorecard for how your business is doing on a monthly basis, which I thought was quite apt and a good addition to your description.
Carl (02:46)
Yeah, is very, it’s a scorecard, tells you how you performed and the numbers don’t lie if you get accurate data in there.
Geoffrey (02:54)
So when we talk about a great P&L or even just an accurate or easy to read P&L, let’s dive into what that actually looks like. Carl, I know that you put together three examples for us of a default P&L, a good P&L and a great P&L. I’d love for you to walk us through it.
Carl (03:11)
Absolutely. So what I’ve got here is what you’ll probably see as the default P&L in your accounting system. It’s pretty basic. It doesn’t have a lot of useful information in there apart from just seeing your total sales, a bit of Cost of Goods Sold and operating expenses and then your net profit at the end. Not really something you get a lot of great insight for and not really something valid to an ecommerce site either. So I put together this one, which I’d call a good P&L and I expect
every ecommerce site to have something ⁓ similar to this. In here we have ⁓ more detail on your trading income, so breaking out your sales revenue, discounts and returns, cost of goods sold, getting your merchant fees and outbound freight up there instead of in OPEX, showing some gross profit margin and also categorizing your customer acquisition costs in their own little section here. And then you still have your other OPEX and net profit is still the same.
And then a great P&L is where you can go even deeper with the help of A2X and you get category or geography-based trading income and cost of sales. We have some other custom metrics in here like contribution margin showing ⁓ more detail and giving you more insight to the performance of the business and still ending up in the same sort of operating and net profits as well.
Geoffrey (04:38)
Very nice. You had mentioned putting together the P&L and I’d imagine that putting together a P&L, which is effectively the output of accurate monthly bookkeeping, you need to have a chart of accounts that’s purpose-built for our Shopify merchants. ⁓ Simon, do you mind talking to us a little bit about the process of putting together a P&L and what that actually looks like from a monthly and a day-to-day perspective?
Simon Davis (05:04)
Yeah, for sure. So I mean, the starting point is the chart of accounts themselves, you’re breaking out the different revenue components, discounts, returns, all that sort of stuff. But that just defines the layout of the report. The layer beneath that ⁓ is good bookkeeping and month end practices. So for example, it’s really common what we say with Shopify merchants, ⁓ you do your bank coding or whatever once a week or once a month, God forbid.
⁓ You’ll code your revenue straight through to sales. When you purchase inventory, you code it straight to cost of sales and that sort of thing. And just those two behaviors basically renders your P&L useless. If you are measuring your gross profit, for example, and it’s doing these ones period to period, ⁓ it’s because of that revenue treatment and that inventory treatment that’s causing that condition.
The real power of the P&L is being able to draw those comparisons period to period. So if it’s got these big imbalances between the periods, it’s very difficult to make decisions from that. So there’s a couple of things that we do as part of our weekly bookkeeping. We gross up is the accounting term for revenue. So we split out.
Gross revenue, discounts, returns, gift card sales is another big one as well as merchant fees and plug those into the relevant accounts. And then from an inventory perspective rather than just coding everything to cost of sales, which is the typical behaviour, we treat it as an asset I should say. So we park it on the balance sheet and then…
move the value of just the inventory that you’ve sold in that particular period across the cost of sales. What that does is it aligns the revenue from those sales with its associated cost and what you’ll see then in the output, ⁓ that gross profit line for example, it should be relatively stable. So assume if it is accounted for correctly and you’re still seeing, you know,
sort of ups and downs period to period, well it’s an immediate indicator that there’s something wrong. know, we’ve gone overboard with the sale period and discounted too much for example, but with that correct bookkeeping practice you can easily isolate conditions like that.
Geoffrey (07:24)
Nice, and I’m about to shamelessly plug A2X, so forgive me in advance, but you had mentioned that as a practice, you break out the deposits that you get from Amazon into their appropriate categories, right? Like their sales, fees, refunds, gift cards, so on and so forth. ⁓ How do you do that, Simon?
Simon Davis (07:42)
It might be a Carl question but A2X is the kingpin I guess you’d call it that whole process. Automates the accounting for the gift card sales and then redemption. That’s a really important distinction because I mean if you just take the revenue up from when you sell a gift card, well you’re effectively paying the tax in advance.
for example, where it should be sitting on the balance sheet as a liability until it’s actually retained. And we’ve got, we’ve seen a couple of horror stories with that sort of thing when it’s not accounted for correctly.
Geoffrey (08:19)
Yeah, 100%. And then there’s also like the option to do it manually, but manually is incredibly time consuming, error prone, so on and so forth. So there are tools that exist to help automate and accurately automate some of the process. A2X is an example, as you just mentioned, but I think kind of the TLDR from everything that you just described though is ensuring that you’re appropriately categorizing every transaction, right?
so that you can actually have a P&L that provides value. And Carl, I think this is a great segue into, ⁓ know, potentially, I’d like for you to dig into what a P&L that provides value looks like, your great P&L example. And do you mind talking to us about why a Shopify merchant would get additional value from a great P&L, comparatively to a good or a default one?
Carl (09:11)
Absolutely. So focusing on that, great P&L I’ve got here, lots of detail in here to give lots of information. So as Simon mentioned, if you’ve got everything accurate and all the bookkeeping done properly, you should have consistent gross profit margins. But as we can see here, in November, it dips down a bit, about 5 % in November in this example. And if we just had
the default P&L on same data and all these three P&Ls like you’re not going to be able to figure out, we’re going to know your gross profits gone down. ⁓ because it’s not there. So this is useless. Then if we just the basic P&L I think every ecommerce should have, you can see that your gross margins gone down. And if we look up, we could identify ⁓ why and that’s your discounts. So you’ve heavily discounted in November, which
Geoffrey (09:48)
Hmm.
Carl (10:08)
probably going to be Black Friday sales as everyone does returns gone up a little bit as well, but your sales have also gone up a lot there. But you could really see it’s just your discounts have gone up disproportionately to your sales in the month and that’s hurting your gross profit margin. But with the great P&L when you sort of separate things out by category as well. And this could be a category here we’ve got golf clubs, balls and accessories or it could be
geographies like Canada, Australia, USA, or any which way you want it. But in this example, we can see the accessories for the month, discounts haven’t gone up massively compared to sales, but we’ve really discounted golf balls and golf clubs in the month. And that’s really what’s hurt your gross profit margin. But in the great P&L as well, I’ve also separated out a contribution margin.
So that’s really your profit after factoring in your costs to acquire customers, so customer acquisition costs, which you’re advertising to marketing agencies and stuff like that, which is a key metric for a well-performing ecommerce store. We can see here that the contribution margin is actually pretty good for the month still. So that tells us that while we have sacrificed ⁓ some gross profit margin for the month, we’ve done it efficiently without…
ad spend. So we haven’t had to spend heaps of money to require the customers to generate those sales. What we’ve given away in discounts will sort of save the bid in instead of advertising costs as well. So we’ve still ended up with a quite a healthy increase in our contribution. It’s gone up. ⁓ So over over doubled from October to November. ⁓ And we can see here our total sales have gone up massively as well.
And we’ll sort of transfer that into some nice operating as well. So those are the extra insights you can get from a good laid out detailed profit and loss with all the underlying accounting treatment done well, of which A2X is ⁓ a critical component to getting all of these sales and cost of goods sold spread out into the appropriate accounts. Because doing this manually is not fun and takes a long time.
Geoffrey (12:32)
I love this example because so often Shopify merchants look at bookkeeping ⁓ as a means to an end for compliance, for tax, right? But the P&L as an output, specifically the great P&L, gives you insights to make informed business decisions. And business decisions as a concept is so fluffy, right? Like people are like, yeah, have good numbers, make good business decisions.
But what you’re showing here clearly is that the numbers are actually allowing you to think about what products are actually profitable and driving revenue, right? Am I, is my discounting strategy right? Or am I over discounting? ⁓ Am I under or am I over recovering on shipping? Right? Is my marketing cost too high for a particular category of products or a region? Like this is.
This gives you the level of insight that you could actually take action against to run a more profitable business. I know that I’m ranting a little bit here, but I really like, it’s very visual and you’ve been able to help visualize the amount of value that you can get from accurate bookkeeping.
Carl and Simon, I guess my next question here is, okay, so now I’ve got this great output. How often should I be reviewing it? And as expert accounting partners,
How often are you going over this with your clients?
Carl (14:00)
Yes, so you should be reviewing your P&L at least every month. And that way, it’s a good cadence to capture the performance, anything less than that, and you’re not going to be able to capture all of all the expenses properly because things like rents only happen once a month. So all your OPEX is going to be bit inaccurate during a month. once a month is the appropriate time to review a P&L.
And you’d also compare it to budgets or forecasts. You’ve done it as well to really ⁓ generate heaps of value out your reporting and your account.
Geoffrey (14:38)
Awesome. So once monthly as a Shopify merchant, and then the next question is, you you, you work with tons of Shopify merchants. How often do you go over this with your clients and what additional level of insights can you provide? Simon, I’ll ask this question to you.
Simon Davis (14:56)
Yeah, thanks, Geoff. ⁓ Monthly is the typical cadence. ⁓ We’re mindful that the founders are critically time poor, right? So the last thing we want to be doing is burdening them, either with information or time, right? There is such thing as information overload. So monthly is a really good cadence. ⁓ What that looks like depends on the nature of the engagement. You can get a wealth of information just from the reports in Xero, but as Shopify merchants will know, there’s
boatload of other metrics that you can tease out by combining Shopify and financial data from Xero, whatever accounting system that you’re using. And that’s the sort of thing that we’ll do in an advisory engagement. So it’s typically a reporting pack ⁓ with at least a monthly catch up to go through the numbers and tease out some actionable insights.
Geoffrey (15:48)
So given that the SBO Financial team puts together these great P&Ls on a regular basis, you go over them with your clients monthly, I’m positive that you have some pretty amazing stories of how these ⁓ reports have been particularly helpful for some of your clients. Can you think of any at the top of your head that you’d like to share?
Carl (16:10)
Yeah, we can actually. had a client, new client at one point, we went through the P&L and sort of something didn’t seem right. And we scratched that itch a bit. We found out that they were recognizing gift card sales as income when they’ll which is not the correct accounting treatment. And as we dove in further, we found out that they had a gift card liability balance of about $300,000.
incorrectly generated for in the P&L, that it should have been in the balance sheet. Now what that meant for this company was that they were paying income tax on ⁓ money or income that they hadn’t earned yet. And it was an Australian business. So there was a GST as well that they were paying on that, that we got to call back for them. So that was to the tune of about $30,000 we got back to them overnight just by looking and having great accurate reporting
in their P&L for the month and doing it properly. yeah, there’s some real tangible insights you can have from having accurate data ⁓ and reviewing these reports monthly.
Geoffrey (17:21)
massive cash cash flow implications like what you just described would would cause a cash flow crunch I would imagine revenue that isn’t actually realized that you have to pay tax on is is insane 300,000 specifically. That’s crazy.
Simon Davis (17:38)
Yeah, might add Geoff, ⁓ what I hear from founders all the time is they don’t necessarily engage with their numbers because they don’t trust what’s in there. Obviously Shopify is the gospel from a sales perspective, but depending on how they’ve been doing the bookkeeping, there’ll be this mismatch between Shopify and the accounting system. And as soon as they lose trust with the numbers, that gets pushed to the side, they don’t engage with them or…
they’re trying to cobble stuff together in spreadsheets or using other third-party plugins or something like that to try and get some transparency of their financial position. It all starts with just good basic bookkeeping practices, reliable data going in to get good reports out and then we get the trust back, we can make data-driven decisions off the back of that and it’s just a whole lot more comfortable place to be than in sort of sticking a finger in the breeze to see which way the wind’s blowing which…
pretty uncomfortable spot.
Geoffrey (18:37)
100 % and you could get to reliable bookkeeping in a multitude of ways. You could do it yourself, right? The only risk there is, know, Carl had a really great example with the gift card example that you don’t, you might not know what the right accounting treatment is, but assuming you do, you could do it yourself. But I would imagine that if you’re a Shopify merchant, didn’t, you didn’t get, get into business to do your own bookkeeping. Another way is that you could work with a team like the SBO financial team.
And then, you know, that’s supplemented by tools like A2X that pulls in the data, summarizes it, and then post it to Xero And then you could match from, you know, say Shopify, A2X and Xero to make sure that the data lines up and that you trust it to your point, Simon. And then, you know, you trust it so much so that you could actually take advantage of it, make smart decisions with it, so on and so forth. So I think that’s a really great point. Trust is, is an incredibly
important component as it relates to your numbers.
Carl and Simon, so far, I really appreciate your expertise on this topic. ⁓ It’s been awesome to see what a default good and great P&L looks like, what’s included in each, why they’re important, some real world examples of how to use the information to make informed decisions, why you need accurate data to be able to trust the numbers so that you actually want to take action against them.
You mentioned that contribution margin
is a key differentiator between a good and a great P&L. I’d love for you, before we hop off, to kind of go over why you would include it in a great P&L, why it’s so important, and how to make sense of it.
Carl (20:24)
So contribution margin is probably one of the most important metrics an ecommerce business should be looking at. And the reason why is it captures a lot of the costs it takes to make the sale. So looking at P&L, you have your income up the top, which is the sales you make. You have your cost of sales, which are what it costs for you to make those sales. So that is the physical goods you’re selling, the merchant fees.
the freight, what it costs for you to get the items to the customer. Then you have your customer acquisition costs, which is what you spend to acquire that customer to get those people to know you exist and make the purchase. And then the operating expenses are kind of what it costs to keep the lights on for the business. And they shouldn’t move too much, but contribution margin can move drastically along with the gross profit margin.
But the contribution margin captures all of the information above it on the P&L and gets it into one metric that you can really sort of optimize your business for because it’s, you can very easily overspend on your advertising to acquire customers and really lose out on margin as a result of that if you’re not optimizing for it properly. So it’s probably the key metric for an ecommerce.
business to look at to make sure that optimizing for it and ⁓ generating the overall profit for a business as well. ⁓ Once you’ve sort of optimized that contribution margin and generated the maximum output from your spending on products and advertising.
Geoffrey (22:08)
Nice, and you can’t get to accurate contribution margin without accurate bookkeeping, right? Like you need the input to get to the output first and foremost. ⁓ Simon, anything that you want to add on contribution margin before we hop off?
Simon Davis (22:25)
No, think Carl nailed it. The only thing I might add ⁓ is we love, we love looking at contribution margin because there’s so many levers you can pull to improve it. We can increase sales, we can reduce discounts, can reduce advertising, we can look for efficiencies in advertising, I should say. hear us just say kill your ads. That’s not a thing at SBO. But it’s the tell-all of your sales and marketing function as a whole. There’s nowhere for anything to hide.
⁓ If there’s any deficiencies in the sales or marketing function, they’re going to be exposed in that contribution margin. it’s the tell-all for how healthy your sales and marketing function is as a whole.
Geoffrey (23:08)
Fantastic. Well, Simon and Carl, I’ve learned a lot through the course of this video. I really appreciate you joining us here today and sharing your expertise. If you want a great P&L and a team to help you get to it, and then obviously the insights that come from the expert support from folks that are doing this across multiple Shopify merchants, I highly recommend ⁓ reaching out to the SBO Financial Team. Their link is in the description below. ⁓ Otherwise, Simon and Carl,
Thanks again and we’ll see you soon.
Simon Davis (23:39)
Thanks, Geoff.
Carl (23:40)
Thanks for having us, Geoff.
