Gross Profit 1
Gross Profit 1 is gross sales minus the cost of goods sold. It is the first layer in the profit framework and the broadest: it tells you whether the product itself is priced above what it cost to buy, and nothing more.
GP1 = gross sales − COGS
What it answers
GP1 is a buying and pricing metric. A low GP1 means the problem is upstream — you paid too much, priced too low, or discounted too hard. No amount of operational efficiency downstream fixes a product that was bought badly.
Because it excludes everything variable except goods, it is also the most stable layer, which makes it useful for comparing products, categories and suppliers over time.
What it hides
Everything that happens after the sale. A bulky low-value item can have healthy GP1 and lose money once shipping is counted. A high-return category can have excellent GP1 and negative Net Gross Profit 1.
This is why GP1 alone is a poor basis for marketing decisions: optimising campaigns on it will favour whatever is cheapest to buy, regardless of whether it is cheap to ship or likely to come back.
The full framework
| Metric | Calculation |
|---|---|
| Gross Profit 1 | Gross sales − COGS |
| Gross Profit 2 | Gross sales − COGS − fulfilment |
| Gross Profit 3 | Gross sales − COGS − fulfilment − marketing |
| Net Gross Profit 1 | Gross sales − returns − COGS |
| Net Gross Profit 2 | Gross sales − returns − COGS − fulfilment |
| Net Gross Profit 3 | Gross sales − returns − COGS − fulfilment − marketing |
Two rules make the whole set readable: the number tells you how many cost layers have been deducted, and the Net prefix tells you whether returns have been taken out first.
See financial controlling for how Dema calculates each layer per product, market and channel in real time.
Related terms
Gross Profit 2
Gross Profit 2 is gross sales minus cost of goods and fulfilment costs — storage, picking, packing and shipping. It is the first layer that reflects the real cost of getting the product to the customer.
Net Gross Profit 1
Net Gross Profit 1 is gross sales minus returns and cost of goods sold. It is Gross Profit 1 corrected for the orders that came back.
Cost of Goods Sold (COGS)
The cost of goods sold signifies the total expense of purchasing the products sold, meaning the cost appears first when you sell the product.
Net Sales
Net sales is gross sales minus returns, discounts and allowances. It is the first figure in an e-commerce P&L that reflects money the business actually kept.
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