okay this video is to cover the basics of making a profit loss statement uh for a seller who is trying to start his own d2c channel uh e-commerce d2c channel in India where d2c means direct to custom direct to consumer so if there's an e-com seller e-commerce seller e-commerce sellers or seller to sell on Amazon Flipkart may show just a marketplaces if there's an e-commerce seller who wants to start his own direct to Consumer Channel there are three things that he will need to set up the first thing that you'll need to set up is his website where he will list the same products that he is listed on Amazon's record admission on his own website then second he will need customers customers to come and place orders for which you will need to do marketing there are multiple places where you can do marketing Facebook Google depending on where you will find relevant customers he will do marketing he will spend money on marketing get customers to visit the website and if the customers are relevant and they like the product they will purchase the product and that is how you start to get and then uh once you start getting orders you will need to tie up with the shipping agency or a shipping company that will pick up the product from his from his Warehouse or from his home and then deliver it to the customer so that is how typically setting up a d2c channel a direct to Consumer channel in India would look like uh before we move on to figuring out how to evaluate the profit loss of such a channel uh I will take you through the progression of an order so basically when we start doing marketing customers come on the website and they Place orders right wherever the customer likes a product he will place an order on the website right so I've spent money on marketing I have spent money on getting these orders so these this is the first type of order this is a basic first type of orders where customers come and place the order on website we'll call these Place orders and I've already paid the marketing uh spend for these orders if these orders don't get delivered it does not matter my money has already been spent on marketing for these orders then some orders get canceled right even as a customer when you order you would there are times when you would order by mistake or you don't want to order anymore and you would cancel these they will call as canceled orders right so on canceled orders I effectively lost the money that I spent on marketing so let's say I spent money for marketing and I got 100 orders after spending uh 10 000 rupees and uh now 10 orders got canceled so effectively I still spend the same amount of money but I got only 90 90 non-canceled orders right so that is where the first drop-off comes with canceled orders and whatever is left is called non-canfield orders now these are the orders that a seller will ship from his location the seller will send via the delivery department right so uh these are ships he will pay the logistics charges for these orders now between this and the order getting delivered there is one more drop off and this is a major problem in the Indian e-commerce industry which is called RTO RTO is also called return to origin now what does this mean when I place a Cod order let's say I place the cash on delivery order it's I didn't pay any money upfront and on the day that I was going to get the order I did not pick up the phone of the delivery boy or I said I do not want it so the seller effectively spent 100 rupees to send the product to you then you spend 100 rupees to get that product back to himself but he got zero he earned zero on that product because that product was not delivered right so it's a huge loss for the seller the seller not only lost his shipping charges is you also have to pay shipping charges to get that product back to him and he also lost marketing because this for these orders also he had already paid in marketing so effectively after this drop and these are the orders where the seller earns money right Jordan delivered seller will receive the money for for these products whatever he has price the product let's say he's selling products for 500 rupees so he's going to get 500 rupees into delivered orders right so I hope the progression of an order is clear where orders are first placed via marketing then some of it is canceled non-canceled orders are shipped uh some of them are RTO and then finally we get delivered order if this is clear now we are ready to go into the basics of making a profit loss statement for a seller and for anybody who even has zero context of mathematics or or going into detail formulas of pnl one basic statement everybody will understand that money out minus money in is equal to profit right money that I earned minus money that I spent is equal to my profit right this is a very basic instinctive statement that everybody hopefully would understand right now if we align with this this is the starting point of building The Profit loss statement for any bills for any business in any industry you this statement holds true right money out minus money in equal to profit so now we just need to figure out what is money out and what is money let's start with money in right so money in where all does sellers spend money right so seller spends money on marketing right if your seller spends money on marketing on Facebook or Google that is how he will get customers to attend to visit his website that's how he will get customers to place the order uh then for the orders that he is going to ship he spends on shipping right for non-canceled orders he spends on shipping and then finally of course there's also the price that he's paid to manufacture and package that product there is one more price which is called fixed costs right fixed costs effectively include all the other costs let's say like salaries of employees if he has rented a warehouse space to Oscar rent uh if there was any initial cost that is spent on setting up a website then fees so all of those things uh come under fixed cost for the purpose of this basic p l we will not count six plus years we will only take the variable cost which are marketing shipping and cost price and before we move on to money out I want to quickly cover what orders is he paying this for so we know there are three types of main orders right placed orders non-cancer law doesn't deliver so marketing cost is paid for placed order which is which is uh easy to understand because unless he does marketing no orders will be placed so he has to spend that much money in marketing for placed orders it does not matter if even zero orders out of that were delivered right but he has to spend marketing on placed orders right uh where does he send where where would he spend shipping for right so he would spend shipping for non-cancel orders because cancel orders he would of course not ship right so for orders that he's shipping for non-cancel orders he would pay the shipping touch and then finally what would he pay the cost price for will he paid for placed orders non cancel out of the delivered orders he would pay for delivered orders because effectively he spends the cost price only when that when he gives that product to somebody else he has not spent spent that cost price right so effectively he can use that product later on if the if an order was canceled he has not given that product to anyone so he can sell it again later right put it in marketing again later so he has not lost that cost price he has only spent the cost price when an order is delivered to the customer so I hope money in is clear to everybody that where does sellers spend money marketing shipping and cost price and marketing he spends on placed orders shipping he spends on non-cancel orders cause price is spent on delivered orders now money out is somewhat easier to understand he will what is the money that the seller will receive he will receive the selling price of the product for delivered orders right you will not receive it for canceled orders or ID orders or non-cancel order for placed orders he will receive it for delivered so money in we know money out we know effectively we know that money out minus money in is equal to profit so profit is equal to money ordinance money and profit is equal to selling price Minus cost right so now I hope this part is clear to everybody uh if it is not clear you can recap and watch this again before moving forward now that this is clear uh before actually making a profit loss statement for a seller there are two more rules that I will highlight and both of these rules are very very important the first rule is that always calculate your p l on the same base of orders or let me say for the same type of orders foreign type of orders let me give you an example right so let's say that marketing cost for placed orders is 50 per order right and Logistics cost is 50 per shipped order right so this is per placed order per shipped order or per non-canceled order and this is per delivered order and the selling price is 250 per delivered order so effectively is it okay to say that my profit is 250 minus 100 minus 50 minus 50 because profit is selling price minus marketing cost minus Logistics course Minus cost price either 50 rupees it is not 50 rupees because this statement this statement is true for a delivered order for orders that got delivered for those orders this statement is true but let's say that there are orders that got canceled right so canceled orders marketing was how much let's say for canceled orders marketing was 50 rupees Logistics was Zero cost price was zero and selling price was also zero because for cancel orders the seller did not earn anything so here the seller had a loss of 50 rupees but our profit law if we go by this analysis right we will never be able to estimate whether estimate the loss on canceled orders and RT orders and iFly at an overall level we might not be able to judge the business property what if 50 of orders are canceled or and 25 percent of orders are R2 then this statement will give us the wrong impression that actually you know we are in profit we are not in profit we are actually over in overall loss so unless we do the analysis for same type of orders for the same type of orders so we will need to bring adjustments bring adjustments unless we do this till then we will not be able to find out the correct profit loss and I will come back to this if you are is there don't worry because and I will tell you why this statement was wrong Let's uh quickly take out rule two rule 2 is always try to do the analysis at a per order level per order level so let's say that there are two businesses business one business two right of the same seller business one total orders hundred business two it does 500 year per order profit is 20 here for order profit is 10 right so total profit here is 2000 rupees 100 into 20 and total profit here is 500 into 10 5000 so effectively uh if a seller looks at 2 then he will say that okay business 2 is better than business one right but we know that okay no business one is actually making more profit per order and that is why I should invest more money in business earn and invest less money in business too and that is why rule number two is easy to understand that always take out per order profit per order profit is when you will be able to take the right decision for the business right so before you move on to making a seller's p l let's quickly recap what we have done till now we said that they are in Indian d2c e-commerce there are three things to set up website marketing and shipping there are there's a progression that an order takes first the order is placed then some of it is canceled the remaining orders are called non-canceled which are shipped by the seller then some of that is RTO and then some of that is the remaining orders are delivered for which the seller receives money then we said that there are three Basics to profit loss first is profit is equal to money out minus money in right we said what is money in for a seller and which orders does he pay it for we said what is money out for a seller and then we said there are two rules which are important to understand rule number one is always calculate pnl for the same type of orders right don't calculate market don't take marketing for Place shipping for non-cancel cost by for delivered and then subtract because that will not make sense you will need to take everything on the same base and most probably it will need to be delivered because your money out is on delivered orders your money out is on delivered orders so you need to adjust everything adjust everything to delivered order level let me rephrase this this is adjust everything to delivered order right now and Rule Number Two was take out per order profit don't take out total profit because per order profit will make you judge a business property now we will utilize these three rules and try and make a seller's pin right so let's say total placed orders of that seller 100. marketing cost per placed order was 50 rupees Logistics cost per shipped order shipped order is also called non-cancel orders right non-cancered orders was 50 rupees canceled orders of out of these 100 10 orders got canceled if 10 orders got canceled how many are non-cancel orders 100 minus 10 which is 90. and out of these 90 70 orders got delivered which means how many RT orders 90 minus 70 20 right so 70 orders got finally delivered non-controlled orders are 90 total orders are 100 right marketing cost he spends per total order per total placed orders which is 50 rupees per total waste order and Logistics cost you spends per non-cancel order which is 50 rupees per non-cancel order and then his cost price per order is 100 rupees is selling price per order is 250 rupees right now what are our rules rule one we will take everything on delivered orders Only Rule 2 per delivered order level right per delivered order level so now we will try and access and money out per delivered order so money in was marketing Logistics cost price marketing cost per delivered order how do we take out marketing cost per delivered order he spent 50 rupees for every placed order and every 100 place order so he spent 5000 rupees 50 in 200 and if we have to take out this per delivered order then I divide by number of delivered orders so it comes out to be 71 rupees per delivery so to order one to to deliver one order he spent total of 71 rupees in marketing which is adjusted from placed order level second is logistics cost per delivered order now he how much how much Logistics spend did he do he spent 50 rupees per non-canceled order which were 90 non-cancel orders so he spent 4 500 rupees on Logistics and we need to take this house per delivered order so per delivered order is 70 divided by number of delivered orders which comes out to be 64. now we have these two costs per delivered order cost price per delivered order remember that cost price is actually for delivered orders only so we directly take the cost place no need to adjust so hundred hundred and I add this up to give me money in per delivered order so to deliver one product to deliver one order net net the seller is 10 and how much is be earning on every delivered order which is the selling price is earning 250 rupees so his profit is actually 250 minus 236 which is 14 rupees right and if I take it out as a percentage of selling price it comes out to be 14 divided by 250 which is 5.6 percent so a seller who spends 50 rupees on marketing cost per placed order spend 50 rupees on Logistics cost per non-canceled order has a cost price of 100 rupees and selling price of 250 Rupees is making 14 rupees profit per delivered order and if you remember this is these are the same costs which I took here marketing cause Roger 6 cost price and if I did not take it out at the same order level then I was getting 50 rupees profit which would have been wrong right I was getting extra profit because I did not consider other orders which were in launched so here what I have effectively done is taken out money in per delivered order taken out money out per delivered order and while taking out money in for delivered order I had to adjust marketing cost from placed order level to deliver order level I had to adjust Logistics cost from non-cancel order level to deliver daughter and then this is how I took out my profit so just to wrap up uh we covered d2c e-commerce we covered progression of an order there are three types of orders we covered basics of piano money out minus money in we figured what money in his marketing plus shipping Plus cost price we figured what money out is which is selling price we said there are two rules take everything on adjust everything to deliver daughter level right if you don't adjust everything to deliver daughter level you saw what will happen it will give you the wrong profit loss right uh and the second aspect of it is uh cover everything at per order profit because if you do if you take it out at total profit level then you can judge wrongly between business one and business two and finally we took an example where we took out number of placed orders number cancel orders number of delivered orders and we got the marketing spend we got the logistics spend we got his cost price we got a selling price we had to take out profit we took out money in we took out money out we took out profit right uh and we got the final profit to be 14 rupees for every delivered order per delivered order