Gross Profit
Revenue minus the direct costs of producing goods or services sold.
Definition
Gross profit is the profit remaining after subtracting the direct costs of producing your goods or services (Cost of Goods Sold or COGS) from revenue. It excludes operating expenses like rent, salaries, and marketing—those come out below gross profit to calculate operating and net profit.
Gross profit = Revenue - Cost of Goods Sold. For a service business, COGS might include direct labor and contractor costs. For a product business, it includes materials, manufacturing, and shipping costs.
Why It Matters
Gross profit shows whether your core business model is profitable before accounting for overhead. If gross profit is negative, you're losing money on every sale—no amount of sales volume will make that profitable.
Tracking gross profit by product, service, or client reveals which offerings are most profitable. This informs pricing decisions, product mix strategy, and where to focus sales efforts.
Examples
- 1
A product sells for $100 with $40 in material and shipping costs. Gross profit is $60 per unit, or a 60% gross margin.
- 2
A consulting firm with $500,000 revenue and $150,000 in consultant contractor costs has $350,000 gross profit (70% margin).
- 3
Analysis shows Product A has 70% gross margin while Product B has 30%. The company shifts focus to selling more of Product A.
Related Calculators
Apply this concept with our free calculators
Related Terms
Quick Navigation
Ready to put this into practice?
InvoiceLaunch automates invoicing with built-in payment terms, late fees, and more.
Get Started