Let's be honest. More startups crash and burn because they treat their profit & loss (P&L) statements like a mysterious document written in ancient hieroglyphics. Meanwhile, the savvy founders who actually understood their numbers? They're the ones scaling successfully, whilst others are still scratching their heads wondering where all their cash went.

If you're running a business and not getting cosy with your financial statements, you're only guessing. And trust us, that never ends well.

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What actually goes into a P&L (and why you should care)

Think of your profit and loss statement as your business's report card. It tells you exactly how you've been performing over a specific period, but more than that, you can use it to work out whether you can pay rent next month. Let’s take a look at what you’ll be digging into: 

Revenue/sales is your starting point. This is all the money coming through your door before anyone takes their slice. Pretty straightforward, right?

Variable costs are the expenses that move up and down with your sales. Sell more flat whites? You'll need more beans. It's like buying ingredients for dinner - cook for two people or twenty, your grocery bill changes accordingly.

Gross profit is what's left after you subtract those variable costs from your revenue. This number tells you whether your core business actually makes sense. If this isn't looking healthy, you've got bigger problems than your marketing budget.

Expenses cover all your fixed costs that keep the lights on regardless of how much you sell. Rent, salaries, that coffee subscription that somehow became essential to operations. These are your business's equivalent of living expenses.

EBITDA might sound like one of Elon Musk’s children, but it's actually a handy way to see how your business performs before all the accounting wizardry kicks in. Standing for earnings before interest, taxes, depreciation and amortisation, think of it as your business's core earning power.

Net profit is the final number after everyone's taken their cut - the taxman, the bank, everyone. This is what actually stays in your pocket.

Understanding these components isn't just helpful - it's absolutely crucial to making decisions that actually move the needle.

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The numbers that actually matter

Let's cut through the noise and focus on what really counts. Some of these metrics might come from your P&L directly, others you'll need to dig a bit deeper for.

Sales trends: 

Are your sales soaring or sinking? Is there seasonality you need to account for? Christmas rush in retail, tax season for accountants, that sort of thing. Which products are your absolute winners, and which ones are about as popular as leftover chips from last night's Maccas run?

These insights should be driving your strategy. If you're not aligning your efforts with what's actually selling, you're basically throwing money at the wall and hoping something sticks.

Gross profit margin per product:

This is where the rubber meets the road. Just because something sells doesn't mean it's worth selling. You might be shifting heaps of units but if your margins are thinner than tissue paper, you're working harder, not smarter.

Work out which products actually put money in your pocket after covering their direct costs. Why would you spend precious marketing dollars promoting something that barely breaks even? Focus your energy where it'll actually make a difference to your bottom line.

Customer acquisition costs (CAC):

Here's where many founders get a reality check. CAC is every dollar you spend to win a single customer, regardless of how much they end up spending. This includes everything from your Facebook ads to the freelancer you hired to build your website. 

Our rule is simple: if you’ve got no data, it won’t work. When you don't know what it costs to acquire a customer, you're just guessing. And  in business, that is about as smart as it sounds.

Build your conversion funnel, assign metrics to each stage, and measure everything. Once you know where customers drop off, you'll know exactly where to focus your efforts for maximum impact.

Contribution margin:

Think of contribution margin as gross profit margin's sophisticated sister. It takes gross profit and subtracts your customer acquisition costs too. This metric tells you the real profitability of each product after you factor in what it cost to find the customers who bought it.

Here's how we think about it: 

• Revenue from a product - cost of goods sold - customer acquisition costs = contribution margin.

As a founder, your job boils down to two things: increase revenue and decrease what it costs to acquire customers. Everything else is just noise.

CAC per channel:

Not all marketing channels are created equal. It's not just about which channel brings in the most customers - it's about which channel brings them in most efficiently.

A jewellery store might find Instagram perfect for selling engagement rings, but TikTok might be the goldmine for impulse purchases under $200. Understanding which products work best on which channels is crucial, especially when you're optimising for conversions.

Fixed costs:

Understanding your fixed costs is crucial for the big picture. These ongoing expenses affect profitability and should inform your long-term strategy. When you're proposing new initiatives, you need to know if the business can actually afford them.

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What to do when the data isn't flowing:

At minimum, you need access to customer acquisition data, product pricing, and contribution margins. Working without this information is like trying to drive from Cape Reinga to Bluff without GPS - theoretically possible, but why would you put yourself through that?

As someone working on growth, you should be accountable for reducing CAC and increasing revenue for high-margin products.

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Why these numbers actually matter for your success

When your numbers are absolutely crushing it, that's your green light to splash some cash on making your brand legendary. Sure, measuring brand magic is trickier than nailing jelly to a wall, but when sales are through the roof and your CAC is taking a beautiful nosedive, you've earned the right to go big on that killer social campaign you've been dreaming about.

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The bottom line

The days of running marketing like it's some mystical art form are over. You need to be financially literate to provide real value. Understanding your finances isn't just for the accounting team - it's a crucial skill for anyone who wants to make a real impact in business.

Stop treating your P&L like it's written in a foreign language. Get familiar with your numbers, make data-driven decisions, and watch your business actually grow instead of just getting busier.