Most ecommerce P&Ls are confusing. And even once you get through one, it doesn't tell you how healthy the business actually is, or where you should be spending your time as a founder.

Sixty lines. Shipping in two different places. Ad spend split across four accounts. Amazon fees buried under "Merchant & Platform Fees." And almost always, a line called "Uncategorized Expense."

So founders skim it, look at revenue, gross profit and net margin, and move on.

The problem: those numbers hide most of what's actually happening in your business.

Here's how I read a P&L instead. Three numbers: CM1, CM2 and net margin.

Meet Harvey Chow

Harvey Chow is a fictional dog brand I use for training. Dog toys, treats and food. They sell on Shopify, Amazon and TikTok Shop, and do about $10M a year.

The numbers are made up, but they're in a realistic range for a $10M DTC brand.

Here's what their P&L tells them, read the usual way:

• Net sales (after discounts and returns): $9.9M

• Gross profit: $7.0M, or 70%

70% gross profit. Looks great.

It isn't.

Why does gross profit lie?

Because of what it leaves out. On most ecommerce P&Ls I see, gross profit only subtracts the cost of the product itself: what you paid for it, the freight to get it to your warehouse, and packaging.

Everything else it takes to get that product to a customer sits further down, mixed in with rent and salaries:

• Shipping and fulfillment

• Payment processing

• Amazon and TikTok Shop fees

Those aren't overhead. They happen every time you sell something. On Harvey Chow's P&L, they add up to $2.06M, all of it sitting below the gross profit line. Shipping and fulfillment alone is $1.15M.

Move them up where they belong and $7.0M of gross profit becomes $4.9M.

What are CM1, CM2 and net margin?

Re-sort every line on the P&L into three buckets:

• CM1 = revenue minus the cost to make and deliver the product. COGS, shipping, fulfillment, returns, payment processing, platform fees. CM1 tells you if the product itself makes money.

• CM2 = CM1 minus variable ad spend. Platform media spend, plus influencer and affiliate fees. CM2 tells you if your media is working.

• Net margin = CM2 minus fixed costs. Salaries, agency fees, content creation, software, rent, overhead. Net margin tells you if the business is making money.

Some people put agency fees and content creation in CM2. I don't. I keep CM2 to spend that moves with sales, and put the rest in fixed costs.

Same P&L. Nothing new. Just sorted in an order that matches how the business actually runs.

What does Harvey Chow look like re-sorted?

• Revenue: $10.34M (100%)

• CM1: $4.93M (47.6%)

• CM2: $2.20M (21.3%)

• Net margin: $33K (0.3%)

(Revenue here is gross sales plus shipping income, minus discounts. Returns move down into CM1, because they're a cost of selling.)

Remember the 70% gross profit? After making and delivering the product, the real margin is 48%.

Put it in plain terms. A customer gives Harvey Chow $100. After paying for the product, delivering it and covering platform fees, they keep $48. After paying for advertising, they keep $21. After salaries, agencies, software and rent, they keep 32 cents.

On $10M in revenue, that's $33K for the year. And that's before interest and depreciation.

Nobody on that team would have guessed that from "70% gross profit."

Where does every dollar go?

This is the view I want every founder to have:

• 52% goes to making and delivering the product

• 26% goes to marketing

• 21% goes to fixed costs, mostly $1.4M in salaries and payroll

• 0.3% is left

When you see it this way, the conversation changes. It stops being "are we profitable?" and becomes "which bucket has to move?"

It also tells you what you can afford to spend. Say your fixed costs are $100K a month and your CM1 is $150K a month. That leaves $50K a month for marketing before you start losing money. Spend more and you're paying for growth out of your bottom line.

What has to change?

To make money, at least one of these has to shift:

• Lower the cost to make and deliver the product. Renegotiate your 3PL. Look at your product costs, and use bundling to raise AOV, so you keep more margin after COGS and shipping.

• Make marketing more efficient. Same revenue on less spend, or more revenue on the same spend. That comes from a better first-purchase ROAS or aMER, better retention, or both.

• Get leaner on fixed costs. Agency retainers, software nobody uses, roles that overlap.

Each point of margin matters at this size. On Harvey Chow's $10.3M, moving any one bucket by 5 points is about $500K. That's the difference between losing money and a real business.

How do I do this with my own P&L?

You don't need a CFO or a finance degree. (I have a degree in dance.) Export your P&L, give it to Claude (or any AI tool you trust with your numbers), and paste this:

I'm going to give you my ecommerce P&L. Re-sort every line into a contribution margin view. Don't change any numbers, only move lines.

Revenue: gross sales by channel, plus shipping income charged to customers, minus discounts. Use this as 100% for every percentage.

CM1 (what I keep after making and delivering the product). Subtract: COGS (product, freight-in, packaging), inventory adjustments, returns and refunds, pick and pack / 3PL, outbound shipping and postage, shipping supplies, payment processing, and marketplace fees (Amazon referral and FBA fees, TikTok Shop fees).

CM2 (what I keep after variable marketing). Subtract: ad spend on every platform, plus influencer and affiliate commissions.

Net margin (what I keep after fixed costs). Subtract: salaries, contractors, agency retainers, content creation, software, rent and other overhead. Stop before interest, taxes, depreciation and amortization.

Then:

1. Show the re-sorted P&L as a table with each line's amount and % of revenue, with subtotals for CM1, CM2 and net margin.

2. List every original line and the bucket you put it in, so I can check.

3. Flag any line you weren't sure about (like "uncategorized" or a fee that could be fixed or variable) and ask me instead of guessing.

4. Confirm your net margin ties to my P&L's net income before interest, taxes and depreciation. If it doesn't, show the gap.

5. Tell me which bucket looks out of line and the 2-3 lines driving it.

It will flag the lines it isn't sure about and show you where every line went. Check those, and make sure the totals tie to your P&L.

What's next?

This is one P&L for the whole business. Next, do this by channel, because Amazon, Shopify, TikTok Shop and wholesale look very different once you sort them this way.

Three numbers. CM1 tells you if the product works. CM2 tells you if your marketing works. Net margin tells you if the business works.

Know all three. Try it on your own P&L and tell me what you find.

Sarah Carusona, DTC growth operator and founder of BA Commerce. I've run a 9-figure ecommerce P&L and work with $5-50M DTC brands.