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Teaching notes · lesson 10 · a 20-minute class

Gross-to-net and the P&L

From list price to net income, line by line. Tracks: Finance, Retail.

Open the lesson

Learning goalsBy the end, students can

  • Walk the P&L from gross sales to net income, line by line.
  • Place deals, loading and listing fees in trade spend, between gross and net sales.
  • Explain why a deal can lift volume and still lower gross profit.

The 20-minute classMinute by minute, with the lab on the projector

  1. 0:003 min, to 3:00

    Cold open

    Write gross sales €100m on the board. Ask how much reaches the bottom line. Collect guesses.

  2. 3:004 min, to 7:00

    The idea

    Walk the lines: gross sales, trade spend, net sales, cost of goods, gross profit, media and overheads, EBITDA, then down to net income.

  3. 7:005 min, to 12:00

    Lab on the projector

    Set a deal and a price change. Follow each line down the walk and stop where the deal shows up.

  4. 12:003 min, to 15:00

    Pairs

    Pairs work the quiz example on paper: €100m gross, €15m trade, €40m cost of goods.

  5. 15:003 min, to 18:00

    Discussion

    Take the question on why trade spend is often the largest marketing-related cost.

  6. 18:002 min, to 20:00

    Check

    Three lesson questions.

Discussion questionsWith what a strong answer covers

  1. Why do deals and listing fees reduce net sales rather than sit in marketing?

    A strong answer covers
    • They are payments to customers (retailers).
    • IFRS 15 treats consideration payable to a customer as a reduction of revenue.
    • So they cut the top line, not a cost line.

  2. Trade spend is often the largest marketing-related cost. What does that mean for a challenger?

    A strong answer covers
    • Small changes in trade terms move net sales a lot.
    • Cites the lesson's range: 12 to 20% of gross sales in benchmarks, 12 to 17% in Countermove.
    • Heavy trade spend teaches retailers and shoppers to expect deals.

  3. Why does gross margin matter to the brand?

    A strong answer covers
    • It is the headroom every other cost comes from.
    • It funds brand media.
    • A thin margin forces choices between memory and profit.

The lab as homeworkAbout 15 minutes for a student

Use the lab to trace one decision down the whole P&L.

  1. Set a deal for one quarter with no price change.
  2. Note every line from gross sales to net income.
  3. Repeat with a price change instead of the deal.

They answer: Which P&L line did the deal hit first, which did the price change hit first, and which one left more net income?

A strong answer covers
  • Places the deal in trade spend, between gross and net sales.
  • Quotes the lab's lines for both runs.
  • Compares net income, not just volume or sales.

Students also answer the lesson's three questions. Their score is worked out on the server from their answers.

Set this lab as homework

Students open a link, do the lab, answer the three questions and write what they found. You see each student's quiz score and finding on your class page.

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