The four expense types every eCommerce P&L needs

Not all expenses affect your business the same way. They behave differently because they hit the business differently, and if you treat them all identically you end up with a very fuzzy picture of what is actually happening. There are four buckets.

1. Revenue

The money coming in. Not yet how you earned it — just the revenue itself. It matters because it is the denominator for understanding the buckets below it.

2. Fixed expenses

The ones that exist whether or not you make money: payroll, rent, health insurance, software subscriptions, legal and accounting fees. If revenue goes from $1,000 to $3,000, these generally do not change. They are not tied to revenue, and they do not change unless you intentionally change them.

The thing about fixed expenses is that they do not care whether you had a good month or a bad one. They sit there like dead weight in the middle of the boat, waiting to get paid. The common early-stage failure is generating some revenue, assuming it justifies hiring, adding payroll — and not understanding what else has to change to pay for it.

3. Variable expenses

Directly tied to sales: cost of goods sold, shipping and fulfilment to the customer, credit card fees, Shopify fees, Amazon fees. Sell three times the product in a week and these rise at a similar rate. Expressed as a margin against revenue, this becomes one of the leading indicators of how efficient the business is — it dictates what ROAS has to be to break even, and how much ad budget a given performance level can support.

4. Advertising

Advertising is technically a variable expense, and your accountant will record it as one. It gets its own bucket here because it behaves differently in one specific way: you can ramp it up or down quickly — think within 24 hours. That means Meta, Google Ads, TikTok, Amazon ads, Pinterest, and the other digital platforms.

It does not mean influencer or affiliate campaigns, bus benches, or magazine placements. Those are sales-related variable costs, but they cannot be ramped quickly, so they do not behave like fuel for the engine.

Once you separate these four, two things change. You treat overhead and hiring decisions differently, because you can see that fixed expenses sit in the business regardless of revenue. And you stop thinking of advertising as simply a cost on the P&L, and start treating it as the fuel that drives a profitable outcome.