Gross Profit 3
Gross Profit 3 is gross sales minus cost of goods, fulfilment and marketing. It is the layer at which a product, campaign or channel is either contributing to the business or not.
GP3 = gross sales − COGS − fulfilment − marketing
Why the marketing layer changes the answer
Up to GP2, costs are attached to the product. At GP3 they are attached to the decision to promote it. That makes GP3 the first layer where a well-bought, cheaply-shipped product can still be unprofitable — because acquiring the customer cost more than the margin on the order.
It is also where scale stops being automatically good. Pushing more spend into a channel raises revenue and usually raises GP1 and GP2, while GP3 falls as the marginal customer gets more expensive. A business steering on revenue will not see that turning point; one steering on GP3 will.
Allocation is the hard part
GP3 requires assigning marketing cost to products or orders, and that assignment is a measurement problem rather than an accounting one. Attributing spend by platform-reported conversions inherits every bias those platforms have, which is why corrected attribution matters here — see causal attribution.
Done badly, GP3 gives a precise-looking number built on a bad allocation. Done properly it is the closest thing to a contribution figure you can act on daily.
GP3 versus Net GP3
GP3 still assumes every order sticks. Net Gross Profit 3 deducts returns as well, and in apparel that difference frequently decides whether a campaign was profitable.
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 unified measurement for how marketing contribution is allocated before it reaches GP3.
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 3
Net Gross Profit 3 is gross sales minus returns, cost of goods, fulfilment and marketing — the fullest measure of operational contribution in the framework.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the total cost of acquiring one new customer: acquisition spend divided by the number of genuinely new customers. It is distinct from cost per order, which includes returning customers and therefore flatters performance.
Wasted Ad Spend
Wasted ad spend is budget that produced no incremental profit — spend on demand you would have captured anyway, on products that cannot convert, or on customers worth less than they cost to acquire.
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