GP and GPPct

GP and GPPct

1. What are GP and GPPct?

GP (Gross Profit):
Gross Profit measures the total profit made on products sold after deducting the cost of goods sold (COGS). It is calculated as the difference between the total revenue and the total cost of goods sold for all items in an order.

GPPct (Gross Profit Percentage):
Gross Profit Percentage indicates how much of the revenue from sales is retained as profit. It is expressed as a percentage and shows the efficiency of a business in generating profits relative to its revenue.


2. Value to Merchants

  • GP (Gross Profit):
    • Provides a direct understanding of profitability for a given period or set of transactions.
    • Identifies which products or categories generate the most profit, enabling better stock and pricing strategies.
    • Helps to pinpoint inefficiencies in sourcing or production costs.
  • GPPct (Gross Profit Percentage):
    • Helps gauge profitability efficiency as a ratio, making it easy to compare across time periods, product categories, or other dimensions.
    • Identifies trends in profitability and detects potential issues with pricing or cost management.

3. Why These Measures Matter to Your Business

  • GP + Revenue:
    Analyze the relationship between gross profit and revenue. High revenue with low GP might indicate pricing issues or high costs, while low revenue with high GP can suggest focusing on premium-priced products.
  • GP + AOV:
    Combining GP with Average Order Value (AOV) helps identify whether larger orders are inherently more profitable or if discounts on bulk purchases are cutting into profits.
  • GPPct + Order Volume:
    Use GPPct alongside order volume to assess whether higher sales volumes are being achieved at the cost of reduced profitability percentages.
  • GPPct + Product Categories:
    Evaluate which categories or products yield higher profit percentages to prioritize marketing and inventory investments.

4. How GP and GPPct are Calculated

GP (Gross Profit):GP=Sum of Revenue − Sum of Cost of Goods Sold (COGS)

Depending on the currency mode:

  • Shop Currency: Uses revenue and cost values in the shop’s base currency.
  • Presentment Currency: Uses values in the currency displayed to customers during checkout.

GPPct (Gross Profit Percentage):GPPct=(GP / Sum of Revenue)×100

This measure reflects the proportion of revenue retained as profit.


5. Practical Examples

  • GP in Action:
    A merchant notices a drop in GP despite stable revenue. By diving deeper into COGS, they identify an increase in supplier costs for a key product. The merchant negotiates better supplier terms, restoring profitability.
  • GPPct Insights:
    A category of luxury items shows a consistent GPPct of 70%, while other categories hover around 50%. This insight leads the merchant to focus marketing efforts on the luxury category for higher profit margins.

6. What is a Good GP and GPPct?

  • GP: Higher is generally better, but excessive GP without sufficient sales volume might indicate pricing issues.
  • GPPct: A higher percentage is ideal, typically over 50% for most eCommerce businesses. However, acceptable ranges vary by industry.

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