Gross Profit
Also called: gross income
What is Gross Profit?
Gross profit is sales revenue minus the direct cost of the goods or services sold. It measures how much a business keeps from trading before rent, salaries, marketing and other running costs are considered.
Why Gross Profit matters
Gross profit is the money available to cover everything else. If it does not comfortably exceed fixed costs, no amount of expense control turns the business profitable — the pricing or the buying has to change.
Gross Profit formula
Gross profit = Net sales − Cost of goods sold
Expressed as a percentage of sales it becomes gross margin.
How Gross Profit works in practice
Direct costs mean ingredients and packaging for a restaurant, purchase cost for a shop, and delivery labour where it varies with volume. Keeping the definition stable month to month matters more than getting the boundary philosophically right.
Frequently asked questions
No. Revenue is the total billed; gross profit is what remains after the direct cost of delivering it.