This is a guest blog article written by Max and Zach Zitney, the owners of JerkyXP.
Why are we writing this?
I have always had a touch of accounting to me. I like being able to demonstrate that the cash flowing from sales to final profit (aka retained earnings) balances at the end of a period. There’s a finality and a sense of security in it: knowing exactly where all the money went! It’s an experience I encourage every entrepreneur to have.
The purpose of this little article is to go over the features in the brand new Shopify Finance Reports, to explain some incredibly useful information that can be gleaned from them, and provide some opinion on what might make excellent features in the future.
At JerkyXP we use a combination of Shopify Reports, ShipHero, and Xero to keep our books balanced. ShipHero is actually a bit of an ad hoc solution, since we use it to obtain our cost of goods figures; more on this later.
Let’s get to it, shall we?
Rundown of new features
When you load the finance reports, you’ll be seeing something like this:
Box 1 contains some accounting data relevant to sales. Payment for these sales are captured by Shopify (notice the Payments and Sales totals do not match: we had a PayPal transaction which was pending for this period. We recorded the sale but were awaiting payment for it)
Fees are applied to the payments, and then we have the actual payout which eventually gets sent to us. As much as I like hearing the sound of myself typing, I’ll simply defer to the very well-written article here for a very detailed discussion of individual features.
What we like
In a word: discounts. The creation of this report will actually save our book-keeping efforts a decent amount of time every time we compile sales and full financial reports. I think this is saving us something like 20 clicks, a couple page refreshes, a couple browser tabs, and some calculator time. I’m thrilled with this improvement.
The reason we’d spend all that work is to get this figure that the Finance Reports now give you: discount totals over a period. This is a critically useful quantity for any merchandising business. It tells you exactly how much of your margin you sacrificed to make those sales for the period.
We like to compute the discount-to-revenue-ratio. In the language of these reports, this is the quantity:
This figure tells you how many dollars you gave away for every dollar you kept. We monitor our ratio pretty closely since it has caused devastating effects when left unchecked before.
The taxes category is another highly useful one. Knowing exactly how much money needs to be moved into our tax accounts is another good time saver.
What we’d like to see
1. Cost of goods. If Shopify would integrate this quantity into its reporting, we could draw much more insightful conclusions right from our Shopify dashboard. Currently, we enter our product costs into ShipHero and calculate our total costs for a period and compare it to payouts for that period to get a handle on our gross margin.
Beyond gross margin, extending the {{ product }} object to include a {{ product.cost }} attribute would greatly extend the effectiveness of discount reporting. With this attribute: Shopify could alert store owners when discounts create unprofitable sales, and create gross profit and gross margin reports.
Such an implementation could seriously extend owners’ ability to optimize profit in their stores. Currently, I have a lot of ability to track the popularity of items by sales; but I’d love the ability to track the impact of items by gross profit impact.
2. Discounts. Being able to understand the fiscal impact of our discounting behavior is fantastic. Shopify could take this to the next level with discount analysis. We have done plenty of work classifying our discounts into various categories and hunting for trends in returns. A lot of meetings spent asking the question “what is the lowest fiscal-impact discount that will motivate the largest sales volume?”
You can tell from this article that we’re big fans of optimization. What would really help us in this goal is more options to sort data within Shopify. This is certainly an ask-of-convenience, but we firmly believe that extending Shopify’s biz-intelligence usability raises the boats of everyone on the platform.
Conclusions
The new Shopify finance reports are absolutely a step in the right direction. While they lack some key features (cost of goods; though this is technically an systemic problem, not a reporting problem), it adds some incredible convenience for drawing key figures out of our Shopify data (discount totals).
We are fans and applaud Shopify’s progress, while eagerly awaiting their next improvement.
