Direct product profitability (DPP) is a method of measuring a product’s handling costs from the time it reaches the warehouse until a customer buys it in the retail store.
Further Discussion on Direct Product Profitability (DPP)
Direct product profitability (DPP) is used in retailing, often grocery stores, to measure a product’s handling costs from the time it reaches their warehouse to the time a customer purchases the product.
DPP takes into account every aspect of a product’s cost: receiving, moving the product to storage, paperwork, selecting, checking, loading, and space cost.
Advantages of DPP
DPP can help increase the profitability in retails stores by calculating all costs associated with a product.
Retailers can allow for more shelf space for high turning products and reduce the amount of space for those products that move slower and yield lower profits.
Direct Product Profitability Calculation Formula
The basic DPP formula is:
Sales Price – Purchase Cost = Gross Margin
Warehouse Costs + Transport Costs + Store Costs = Direct Product Costs
Gross Margin – Direct Product Cost = Direct Product Profit
For additional information on Direct Product Profitability, visit Retail Economics« Back to Glossary Index