How is an Account P&L Structured

There are different P&Ls that an FMCG KAM has to manage: the internal P&L, the external P&L and the retailer P&L. The internal P&L is what is recognized as the official P&L captured in financial statements.

Any P&L, simply put, is net revenue minus cost.

And revenue is at its basic level just price multiplied by volume.

But.

Given that there are different types of prices for a certain product in the FMCG world, which price should this be? Since the internal P&L is determined by the volume you are selling to the retailer, (rather than to the shopper, which is the case in the external P&L), it will be the price that you are charging the retailer for your product. This price is called the invoice price and the corresponding line in the P&L is called invoice sales.

So, “revenue” can be re-written as invoice sales multiplied by volume.

Now, the manufacturer-retailer relationship is unique in the sense that whilst you are charging the retailer a price for the goods they buy from you, you also pay to them various amounts including their commission. In essence, you are also paying to the customer you are selling to. Therefore, it is appropriate to adjust this amount in the revenue that you make.

Another adjustment in revenue is that of any product returns (say, you delivered damaged products).

So, going back to the net revenue minus cost equation, the net part of the equation refers to the subtraction from invoice sales all the amounts that are paid to the retailer and all the “returns”. This net revenue term is also called net sales or (or “NNN” standing for net net net).

Invoice Sales – Trade Spend – Returns = Net Sales

Cost is just the cost of goods sold (COGS) and usually account managers don’t have any control over it for a SKU but they can manage it for their brand or full portfolio by orchestrating the composition or mix of SKUs sold. COGS are the direct cost of manufacturing the line i.e labour and material that can be directly traceable to create the goods.

Therefore, Net Sales- COGS = Profit.

Now, the purpose of an FMCG Account profit and loss statement is not just to determine how much profit you are making but also how much are you having to invest with the retailer to make that profit. We are capturing part of this investment in the line between Invoice sales and Net sales (assuming returns are small enough to be ignored). But you will have agreed different invoice prices with different retailers. For instance, for retailers with large volume requirements, you may have agreed relatively lower invoice prices. You don’t want this discount on invoice price to just go untracked.

Hence, there needs to be another line based on standardized notional prices which are the same across all customers. This line is called Gross Sales & is based off the internal List Price for each SKU. The value within this line would just be the function of volume and List Price and since price is the same across all accounts it allows us to track the true full investment with a retailer. This line has no bearing on the gross profit.

Gross Profit is where the P&L responsibility of the account manager ends. Below is how a simplified version of the Internal P&L looks like.