How MarginOS calculates Gross Profit (CM1)

MarginOS calculates Gross Profit — also called Contribution Margin 1, or CM1 — as your net revenue plus the shipping your customer paid, minus every variable cost of delivering that order: COGS, fulfillment, payment gateway fees and refund fees. It is computed on each individual order and then rolled up to the SKU, channel and window you are looking at, so every screen in MarginOS shows the same number. CM1 is your profit before marketing spend, which is what makes it the honest starting point for every other metric in the product.

What is Contribution Margin 1 (CM1)?

Contribution Margin 1 (CM1) is net revenue plus shipping revenue, minus all variable delivery costs for an order — COGS, fulfillment, payment fees and refund fees — before any marketing spend or fixed overhead. In MarginOS, CM1 and Gross Profit are the same number; the product uses the terms interchangeably and computes them with one shared formula.

CM1 is for operators who need to know whether a product, channel or order actually makes money once the real cost of getting it to the customer is counted. It matters because top-line revenue and even textbook “gross margin” routinely hide the costs that decide DTC profitability: pick and pack, the 3PL invoice, the processor’s cut, and the fees you never get back on a refund. MarginOS deliberately excludes advertising from CM1 so that product profitability and acquisition cost stay separate, measurable things.

Before you start

• A connected Shopify store — the source of orders, refunds, financial status and shipping revenue.
• A unit cost for the SKUs you sell, from any tier: an exact per-unit landed cost, a manual override, or a store-wide default.
• A fulfillment cost source — a connected 3PL or shipping provider, or your store-wide pick-pack default.
• Payment gateway fee rates for the processors you use, so the processor’s cut is deducted rather than estimated.

Where to see Gross Profit in MarginOS

1. Open Command Center to see contribution profit and Gross Margin % for your store over the selected date window.
2. Open Catalog Profit to see Gross Profit per SKU in the SKU Economics table.
3. Click any SKU to open its detail drawer, where the full cost stack behind that CM1 is broken out line by line.
4. Open Growth to compare CM1 by acquisition channel, which is the basis for LTGP and LTGP:CAC.

Inputs and settings reference

Only orders that are not cancelled, not test orders, and whose financial status is paid, partially_paid, partially_refunded or refunded are included. Cancelled and voided orders are excluded entirely.

How MarginOS calculates Gross Profit (CM1)

MarginOS computes CM1 on each order and sums the result — it never applies an average margin to a revenue total. The canonical formula is:

CM1 = (net revenue + shipping revenue) − net COGS − fulfillment costs − payment gateway fees − refund fees

Where net revenue = order subtotal − refunded subtotal and net COGS = gross COGS − refunded COGS. Gross Margin % is then CM1 ÷ net revenue × 100.

Three details decide whether that number is honest, and MarginOS handles each explicitly:

• COGS is only reversed when the product comes back. A refund credits COGS back only for units that are restocked to sellable inventory. When a refund is marked no-restock, the revenue is reversed but the product cost stays expensed — you refunded the cash and never got the item back, so the loss is larger, and MarginOS shows it that way instead of assuming full recovery.
• Fulfillment is never reversed. Pick, pack and shipping were spent the moment the order went out. A refund does not give that money back, so fulfillment cost stays in the calculation.
• Refund fees are a reclassification, not an extra charge. When an order is refunded, the processing fee you already paid on the refunded share is moved out of the payment-fee term and shown as a refund fee. Payment fees plus refund fees still equal the total fee the processor took, so CM1 is unchanged — the decomposition simply becomes truthful about why the money is gone.

Because CM1 requires a cost for every unit sold, MarginOS resolves unit cost through a tiered hierarchy — an exact per-unit landed cost first, then a manual override, then a store-wide default. When it has to fall back to a store-wide assumption it raises a data-quality signal and marks the SKU’s trust level rather than presenting an assumption as a measurement. MarginOS never invents a cost to make a margin look complete.

What MarginOS calls this on each screen

One number, three labels. MarginOS names Gross Profit for the decision each screen supports, which means you will meet the same figure under different headings as you move around the product. They are not different metrics and there is no reconciliation to do between them.

If two of these ever disagree for the same period and business line, that is a bug worth reporting — not a difference in method.

Example

An order for 3 units of a SKU that sells for $40.00 and has an effective landed unit cost of $18.00. The customer paid $9.95 shipping, then returned 1 unit, which was restocked. Fulfillment is $4.50 per unit, and the processor charged $4.07 on the order.

Gross Margin % is $36.38 ÷ $80.00 × 100 = 45.5%. Note that payment fees and refund fees still sum to the $4.07 the processor actually took. If that same return had been marked no-restock, the $18.00 COGS credit would disappear and CM1 would fall to $18.38 — the same refund, roughly half the profit, which is exactly the difference operators need to see.

FAQ

Is CM1 the same as Gross Profit in MarginOS?

Yes. MarginOS treats Contribution Margin 1 and Gross Profit as the same number: profit after all variable delivery costs and before marketing spend. Every screen uses the one canonical formula.

Why does MarginOS call this three different things?

Because each screen names the number for the decision it supports: “Contribution Profit” on the Command Center summary, “Profit before ads” wherever the figure sits beside ad spend, and “Gross Profit (CM1)” in per-unit and per-business-line views. All three are the same canonical formula on the same orders, so they never need reconciling against each other.

Does MarginOS include shipping revenue in Gross Profit?

Yes. The shipping the customer paid is added to revenue, and fulfillment cost is subtracted, so CM1 shows whether delivery paid for itself. Shipping revenue stays a separate visible term, never folded into net revenue.

Does MarginOS subtract advertising spend from Gross Profit?

No. CM1 is profit before marketing. Advertising is applied later in CAC, LTGP:CAC and payback, so you can see product profitability separately from acquisition cost.

What happens to COGS when a customer returns an item?

MarginOS reverses COGS only when the unit is restocked to sellable inventory. If the refund is marked no-restock, the revenue is reversed but the product cost stays expensed, because the merchant refunded the cash and never got the product back.

Which orders count toward Gross Profit?

Orders that are not cancelled, not test orders, and whose financial status is paid, partially paid, partially refunded or refunded. Cancelled, voided and test orders are excluded entirely.

Why is my Gross Profit missing or marked low trust?

CM1 needs a cost for every unit sold. When a SKU has no exact unit cost, MarginOS falls back to an override or a store-wide default and flags it with a data-quality signal rather than inventing a number.

Related

• How MarginOS calculates LTGP
• Data Trust levels: how MarginOS grades margin reliability
• The Defensible Profit Model: three tiers of cost exactness
• Set your store-wide COGS, shipping and pick-pack fallbacks