Definition
Gross profit is the amount of money left after subtracting the direct cost of products sold from total revenue, before deducting other business expenses.
Explanation
In dropshipping, gross profit shows how much a store earns from product sales before costs like advertising, software subscriptions, transaction fees, and taxes are considered.
The basic formula is:
For dropshipping stores, COGS usually includes:
- Supplier product cost
- Shipping or fulfillment fees
- Packaging costs (if applicable)
Gross profit is important because it helps store owners understand whether their pricing and product margins are healthy enough to support advertising and operational expenses.
A store can generate high revenue but still struggle if gross profit margins are too low.
Example
A dropshipping store sells a portable projector for $80:
- Supplier cost + shipping: $35
The gross profit per sale is:
The store earns $45 gross profit before paying for ads and other expenses.
Key Takeaway
Gross profit helps dropshipping businesses measure product profitability and determine whether their pricing model can support long-term growth.