Gross Profit Calculator

The underlying calculation

Gross profit is revenue less cost of goods sold, stated in currency rather than as a percentage. On a unit: price less unit cost. Across a period: total revenue less total cost of goods.

The absolute figure and the percentage answer different questions, and businesses that only track the percentage systematically misjudge which products matter. Gross profit pays the bills; gross margin describes efficiency.

Worked through

A $12 product at 65% margin produces $7.80 of gross profit. A $95 product at 42% produces $39.90.

The first is far more efficient and the second is worth five times as much per sale. If both take the same effort to list, pick, pack and support, and they often do, the second is straightforwardly the better product to sell, and a catalogue ranked by margin percentage would say the opposite.

Across a month: 300 units of the first is $2,340; 60 units of the second is $2,394. Roughly equal gross profit from a fifth of the orders, which means a fifth of the picking, packing, support and returns handling.

Where it goes wrong

Gross profit ignores everything after the cost of goods, which for ecommerce is a great deal: fulfilment, shipping, payment fees and returns can consume half of it.

It also invites comparison across periods without adjusting for mix. Gross profit rising while margin falls means volume grew in the wrong products, and only looking at both together shows it.

Making it useful

Rank products by gross profit per unit alongside margin percentage, and by gross profit per hour of handling where labour is the constraint. The three rankings usually disagree, and the disagreement is the useful information.

Track total gross profit as the headline number rather than revenue. Revenue can be bought with discounts; gross profit cannot, which makes it the harder and more honest target.

Gross profit per order rather than per unit

Most ecommerce costs attach to the order rather than the unit: one pick, one pack, one label, one payment fee, one support ticket. That makes gross profit per order a better operational measure than gross profit per unit.

A business with 1.8 units per order and $7.80 of gross profit per unit produces $14.04 per order. Raising units per order to 2.4 through bundling or thresholds produces $18.72, a 33% increase in gross profit per order with no change to any product's margin and no additional acquisition cost.

That is why basket-building work tends to outperform margin work in businesses where fulfilment is a meaningful cost. The margin percentage does not move at all, and the profitability of the operation changes substantially.

The same logic applies to shipping thresholds. A free-shipping threshold set just above the average order value converts customers who would have bought one item into customers who buy two, and the gross profit on the second item usually exceeds the shipping being given away by a wide margin.

Both are worth modelling before implementing, because the threshold has to sit close enough to the current average that reaching it means adding one item rather than two. Set too high, it suppresses orders instead of building them.