Your P&L Is Not A Scoreboard

Last week I told you about the year I crossed $10 million in revenue and lost over $200,000. If you missed it, tap here.

The reason it happened wasn’t complicated.

I was watching one number. Revenue.

And revenue was going up.

What I couldn’t see, because I wasn’t looking properly, was everything underneath it moving the wrong way.

Here’s the lesson that I learned the hard way...

Stop reading your P&L in dollars. Start reading it in percentages.

Because dollars tell you what happened. Percentages tell you whether the business is getting healthier or sicker.

Revenue up 40% sounds like a great month. But if your gross profit dropped from 62% to 54% over the same period, you just did significantly more work for barely any more money.

The dollar figure celebrated. The percentage warned you.

That’s the difference between a scoreboard and a diagnostic tool.

So here’s what to actually look at.

1. Gross profit, as a percentage of revenue

This is the most important number in your business, and the one most often calculated wrong.

Your cost of goods has to include everything that goes into producing what the customer actually receives. Not just the obvious raw materials. Everything.

If you hire a space to produce in, that cost belongs in cost of goods, spread across the units you produced in that session. If you pay someone to assemble, pack, or finish the product, that belongs there too. If it exists because the product exists, it sits in cost of goods.

Get this wrong and every number below it is wrong. You’ll think you’re running at 70% margin when you’re running at 40%, and you’ll make every subsequent decision on a false foundation.

2. Every operating expense, as a percentage of revenue

Not the dollar amount. The percentage.

What percentage of your top-line revenue goes to advertising? What percentage goes to content? To outbound freight? To wages? To rent?

Once you can see each line as a percentage, you can finally ask the question that matters: is this an effective use of that money at this size?

Because a $10,000 ad spend means nothing on its own. At $20k revenue it’s 50% and it’s probably strangling you. At $200k revenue it’s 5% and you're probably underspending.

The dollar figure is meaningless without the denominator.

3. Net profit, as a percentage of revenue

The number that tells you what the whole machine actually produced.

And the one I ignored in 2019, because I was too busy admiring the top line.

Now, here’s the part that makes all of this useful.

A single month tells you almost nothing.

One month is a snapshot, and snapshots lie. A slow month, a big stock buy-in, a seasonal dip - any of it can distort a single month beyond recognition.

What you’re looking for is the trend.

Is gross profit percentage climbing or sliding across the last six months?
Is your advertising creeping up as a share of revenue while conversion stays flat?
Is an expense line quietly expanding every month while you weren’t watching?

That’s where the decisions live. Not in the month. In the direction.

And one thing worth saying plainly, because it stops a lot of people before they start.

I’ve never once opened a new mentoring client’s P&L and found it in the shape I wanted it in. Not with businesses doing $500k, and not with businesses doing $10 million. It’s always a mess the first time.

That’s not a reason to avoid it. That’s the work.

You don’t need it perfect. You need it a little more accurate this month than it was last month, and a little more accurate again the month after that.

Because a business you can’t measure is a business you can’t improve.

And the moment your P&L stops being a scoreboard and becomes a diagnostic tool, you stop guessing.

You start deciding.​

If you know someone who would benefit from reading this, please forward it to them. It may change the trajectory of their life for the better, and the catalyst could be you.