Gross-to-net (GTN) is the bridge between two numbers a DTC brand reports very differently: gross demand at list price — what customers checked out — and net revenue, the line finance books on the P&L. It is conventionally drawn as a waterfall, where each bar subtracts a named deduction category until the final bar lands at net.
For a DTC brand the deduction stack usually runs, in order: promotional discounts and loyalty or store-credit redemptions; gift-card liability movement (gift cards book as a liability on issue and convert to revenue only on redemption); sales tax carved out as a pass-through, since the brand collects on behalf of tax authorities; shipping recovery netted against carrier cost; returns and refunds; chargebacks; marketplace and payment-processor fees; and, for brands with a wholesale channel, contractual rebates and co-op accruals owed back to retailers.
Net revenue — not gross demand — is the input to the margin stack. Gross margin and contribution margin both start from the net line; without the waterfall, growth dashboards showing healthy gross demand can drift weeks ahead of a P&L that’s quietly thinner than last month’s.
The operator gap is workflow, not arithmetic. Most DTC finance teams reconcile the waterfall at monthly close; most growth teams optimize against Shopify dashboards that show gross demand and never look at it. Deduction creep — a deeper promo cadence, a climbing return rate, a processor renegotiating its take — compounds silently between closes. Reading the waterfall as a diagnostic means watching which bar is widening: that’s where MER and LTV, read against the net line, start telling the truth before close confirms it.