Gross margin is the first profitability line on the P&L. The dollar form is gross profit = revenue - COGS; the percentage form is (revenue - COGS) / revenue. For a DTC brand, COGS is the landed product cost — manufacturing or wholesale cost, inbound freight, and import duties — every dollar required to get a sellable unit into the warehouse.
What sits below the gross-margin line matters as much as what sits above it. COGS excludes outbound shipping, pick-pack, payment-processor fees, customer service, and returns processing; acquisition spend sits further below still. Those are the variable costs that define contribution margin, and the gap between the two is where DTC operators get surprised: a brand can run a healthy 60% gross margin and a 15% contribution margin once shipping and processing fees come out. Both numbers are correct; they answer different questions.
Gross margin drives the operator decisions that touch price. Every dollar of promotional discount comes out of gross margin one-for-one, which is why discount discipline is a margin lever and not just a demand lever. Supplier and freight negotiation move the same line from the cost side.
Gross margin also bounds what the brand can afford to spend on acquisition: a 40%-GM brand has materially less headroom for paid CAC than a 65%-GM brand at the same ROAS, because every acquisition dollar has to be recovered from a thinner margin pool.