Glossary
What is gross profit? E-commerce definition
June 4, 2026
Gross profit measures what remains after subtracting the direct cost of goods sold from revenue. In e-commerce, it provides an initial reading of actual profitability before marketing expenses, salaries, software fees, or administrative costs. It is a much more telling indicator than revenue alone, because a store can sell a lot while retaining too little margin to finance its acquisition, customer support, and growth.
Summary
Definition of gross profit
Gross profit (or gross margin in amount) answers the question: "How much do I make from selling my products after paying the costs to produce or buy them?"
Formulas:
In practice, this mainly covers Gross Profit = Revenue (net sales) − COGS (Cost of Goods Sold); and Gross Margin Rate (margin) = Gross Profit ÷ Revenue × 100.
Example: Monthly revenue €50,000, COGS €22,000 → Gross profit €28,000, Gross margin 56%.
Useful distinctions:
In practice, this mainly covers Gross Profit vs Net Income: net also deducts marketing, salaries, rent, Shopify fees, taxes; COGS vs opex: COGS follows the volume sold; Meta ads or rent are operating expenses, not COGS; Gross Revenue vs Net Revenue: gross profit is most often calculated on net revenue (after discounts and returns depending on your accounting); and Gross Profit vs AOV: AOV is an average order value; gross profit measures unit or global profitability after product cost.
Gross profit must be tracked at the global level, but also by product or by category. A decent average can hide products that sell well but destroy the margin.
Why gross profit is a key indicator
Many shops optimize turnover or traffic without tracking the product margin. However, an increasing turnover with a low gross margin can deplete cash flow.
In practice, this mainly covers Pricing: setting prices compatible with COGS and positioning; Ads budget: the available gross margin caps the sustainable CAC and ROAS; Product mix: identifying highly profitable SKUs vs low-margin loss leaders; Promotions: a -30% discount can wipe out the gross profit if the COGS is high; Scale: growing without sufficient gross margin multiplies operational losses; and Investors / management: KPI tracked with analytics and accounting.
DTC rule of thumb: aim for a gross margin of 50 to 70% depending on the category (fashion, beauty, food differ significantly). Above all, compare with your peers and your model (DTC vs resale).
In the context of an e-commerce glossary, the challenge is therefore to understand the concept, but also its concrete effects on conversion, internal organization, margin, or the quality of the customer experience.
Costs to integrate and commercial reading
Items often included in an e-commerce store's COGS:
In practice, this mainly covers: purchase or manufacturing cost of the product; product packaging (box, protection); inbound freight: supplier → warehouse transport (depending on accounting method); and customs duties on imported goods (if allocated to sold units).
Generally excluded from COGS (operating expenses): advertising, final customer shipping, Shopify Payments fees, customer service, office rent, apps.
Use case: a DTC candle brand sells a SKU for €32 including tax (€27 excluding tax simplified). Unit COGS: wax + jar €6, packaging €1.20, inbound €0.80 = €8. Unit gross profit: €19. Gross margin: 70.4%. After advertising (€8/sale) and customer shipping (€5), ~€6 remains before fixed costs. The team decides not to run a -25% promotion on this SKU (margin too compressed) and instead to upsell a higher-margin kit.
This type of case shows that a technical or marketing concept only has value if it is linked to a specific use: a better customer journey, a more reliable decision, better cost control, or a clearer experience for the buyer.
Track gross profit in Shopify
Shopify allows you to enter the cost per item on each product variant. If filled in, reports display the margin and gross profit per product or period (Shopify Help Center).
Useful tips:
In practice, this mainly covers updating the cost with each supplier change or batch; including a consistent logic (packaging yes/no in the cost field); cross-referencing Shopify reports with accounting (Pennylane, QuickBooks) for the net profit; and exporting sales + COGS for analysis by collection or channel.
Limitations: Shopify calculates the product margin, not automatically your entire P&L (payroll, ads). Supplement with a spreadsheet or ERP for the net result. Returns decrease revenue and must be reflected in the actual gross profit.
On Shopify, the logic generally consists of starting with native features, then adding a theme, an app, or an integration only when the business need justifies it.
Points of vigilance for managing the margin
In practice, this mainly covers: Calculating margin per SKU before scaling ads; Reviewing COGS after shipping or raw material inflation; Simulating promos: gross profit after discount vs additional volume; Comparing CAC to gross margin per order, not just to revenue (CAC vs LTV); and Separating accounting and Shopify: a single definition of COGS internally.
Points of vigilance:
In practice, this mainly covers: Forgetting to log the product cost in Shopify (distorted reports); Confusing gross margin and net margin in advertising decisions; Selling a best-seller with low margins without knowing it; Including advertising in the COGS (artificially high fake margin); and Ignoring returns and refunds in net revenue.
The right approach is to document the rules, test the changes on a limited scope, and verify their actual impact before rolling them out to the entire store.
In summary
In practice, this mainly covers Gross Profit = Revenue − Cost of Goods Sold (COGS); Gross Margin % = Gross Profit ÷ Revenue; Key KPI before OPEX; Distinct from net income, CAC, and AOV; Shopify: "cost per item" field + margin reports if filled in; and driving pricing, promos, and ads from the actual product margin.
The essential part is to link this concept to a concrete use case: selling better, measuring better, optimizing shop organization, or reducing friction in the customer journey.
Related terms, FAQ, and useful resources
Associated terms
Margin: profitability rate or ratio.
CAC: to be compared to the gross margin per customer.
AOV: average order value, complementary to the unit calculation.
CLV: customer lifetime value, net of cumulative COGS.
FAQ
Gross profit and gross margin: the same thing?
Gross profit is an amount (€). Gross margin often refers to the percentage (gross profit ÷ revenue). In conversation, the two terms are sometimes mixed up; specify amount or %.
What gross margin to aim for in e-commerce?
Variable: 40-60% is common in retail or heavy products; 60-80% is possible for own DTC brands or digital products. The important thing is that gross margin − CAC − customer logistics leaves a positive contribution.
Where to enter cost on Shopify?
Product > variant > Cost per item. Update for all active SKUs.
Does customer shipping go into COGS?
Generally no: it is a logistics / opex charge. Only product packaging can be integrated into COGS depending on your accounting.
Go further
Sources: Shopify Help Center (Product costs), PCG / IFRS accounting principles (cost of sales). Margin ranges: adapt to your industry and your accountant.
Enzo
13 May 2026
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