P&LJanFebMarSales3,000 3,036 3,040 Volume 2,000 2,200 1,900 Price (Average) 1.50 1.38 1.60 Factory Costs1,650 1,763 1,619 Raw Material 1,000.00 1,100.00 950.00 Labor 500.00 500.00 500.00 Electricity 50.00 53.00 49.00 Maintenance 100.00 110.00 120.00 Gross Margin1,350 1,273 1,421 % of Sales45%42%47%Administrative Costs850 860 860 Sales Force 500.00 510.00 510.00 Advertising 100.00 100.00 100.00 Staff 250.00 250.00 250.00 Net Income500 413 561 % of Sales17%14%18%I remember, some years ago, when a worksheet like the one above was shown to us in the financial management class in MBA school. General astonishment! The truth is that the marketer is often not used to dealing with numbers, and when it's really needed, the shock is unavoidable.The spreadsheet above is the famous P & L spreadsheet, and means "Profits & Losses". This is a report that states the financial health of a product, product line, department, or even a company as a whole (for this article, we will use the generic term "business unit").With this report, it is possible to know what is selling, administrative expenses, costs, investments and everything else that may impact the business unit profitability.In order to better analyze the expenses, we must understand the P&L structure, which is based on three interlinked pillars: Sales, Cost and Profit. When a business unit sell its products and take down your costs, have your profit. This is the beginning of the P & L.The calculation below may seem simple (and it really is), but is crucial for managing the P & L. We can see, from its analysis, there are two ways to increase profit: increase sales or decrease costs.Sales (eg: $3,000)-Cost (eg: $1,650)=Gross Margin (eg: $1,350)By "Sales", we should consider all direct revenues (Local Sales, Export and Public Bids) from its activity, always indicated in monetary value. This value is found by multiplying the total volume (units) and the selling price. Changing our formula, we get:Volume in units (2,000)*Price ($1.50)=$3.000-Cost ($1,650)=Gross Margin ($1,350)The "cost" should be understood as all costs related to the manufacturing activity. It needs to consider only costs directly related to manufacturing, as raw material, Labor, electricity, maintenance, and others. Do not include costs not related to manufacturing (such as advertising, for example). Our formula, then, shows these costs:Volume in units (2,000)*Price ($1.50)=$3,000-Raw Material ($1,000)+Labor ($500)+Electricity ($50)+Maintenance ($100)+Other factory costs=$1,650=Gross Margin ($1,350)Thus, we have the "Gross Margin" (also called "gross profit") being generated from the subtraction of various elements. Use the Gross Margin to pay investments, Sales Force salaries, Staff salaries, and others. In order to facilitate the analisys, we can put the same equation like below:P&LJanTotal Sales3,000 Volume 2,000 Price (Average) 1.50 Factory Costs1,650 Raw Materials 1,000 Labor 500 Electricity 50 Maintenance 100 Gross Margin1.350 Like you can see, our spreadsheet is getting the same way as the P&L. From this point on, we need to include costs not related to manufacturing, like investments in advertising, sales, logistics, engineering, legal, purchasing, etc.. All these costs will be charged from Gross Margin. After all charged, the full P & L is completed as follows:P&LJanFebMarSales3,000 3,036 3,040 Volume 2,000 2,200 1,900 Price (Average) 1.50