Basics of Profit Loss Statement for D2C E-Commerce Sellers in India

Overview

• Focus on creating a profit loss statement for D2C (Direct to Consumer) e-commerce sellers in India.
• D2C involves selling products directly to customers, bypassing marketplaces like Amazon and Flipkart.

Steps to Set Up a D2C Channel

1. Website Creation

   • List products that are also available on marketplaces.

2. Customer Acquisition

   • Use marketing strategies to attract customers.
   • Channels include Facebook, Google, etc.

3. Shipping Logistics

   • Partner with a shipping agency to deliver products from the seller’s location to customers.

Order Progression

1. Order Placement

   • Customers place orders after marketing efforts.

2. Order Cancellations

   • Some orders may be canceled (e.g., customer changes mind).
   • Marketing spend is lost for canceled orders.

3. Shipping and RTO (Return to Origin)

   • RTO occurs when customers refuse Cash on Delivery (COD) orders, leading to additional losses.
   • Sellers incur costs both for shipping the product and returning it.

4. Delivered Orders

   • Successful deliveries result in revenue for sellers.

Basics of Profit Loss Statement

• Formula:
  Profit = Money In - Money Out
  • Money In = Revenue from Delivered Orders
  • Money Out = Total Costs (Marketing, Shipping, Cost Price)

Money In

• Revenue from delivered orders only.
• Selling price per delivered order.

Money Out

• Components:
  • Marketing Costs
    • Paid for placed orders.
  • Shipping Costs
    • Applicable for non-canceled orders (shipped orders).
  • Cost Price
    • Paid only for delivered orders.

Important Rules for P&L Calculation

1. Calculate on Same Base

   • Analyze profit/loss using the same type of orders.
   • Adjust marketing, shipping, and cost price based on delivered orders.

2. Per Order Level Analysis

   • Assess profit at per order level for accurate decision making.
   • Allows better comparison between different business segments.

Example Calculation

• Total Orders: 100
• Canceled Orders: 10
• Non-Canceled Orders: 90 (100 - 10)
• Delivered Orders: 70 (90 - 20 RTO)
• Costs:
  • Marketing Cost per Placed Order: 50
  • Logistics Cost per Non-Canceled Order: 50
  • Cost Price per Order: 100
  • Selling Price per Order: 250

Calculation Steps:

1. Marketing Cost

   • Total marketing spend for 100 orders = 5000 (50 * 100)
   • Per Delivered Order = 5000 / 70 = 71.43

2. Logistics Cost

   • Total logistics spend = 4500 (50 * 90)
   • Per Delivered Order = 4500 / 70 = 64.29

3. Total Costs per Delivered Order

   • Total Cost = Marketing + Logistics + Cost Price
   • Total Cost = 71.43 + 64.29 + 100 = 235.72

4. Profit per Delivered Order

   • Profit = Selling Price - Total Cost
   • Profit = 250 - 235.72 = 14.28

5. Profit Percentage

   • Profit Percentage = (14.28 / 250) * 100 = 5.71%

Conclusion

• Understanding how to calculate a profit loss statement is crucial for D2C sellers.
• Following the outlined rules will help avoid miscalculations and provide a clearer picture of financial health.