What is gross profit?

Gross profit is the revenue remaining after subtracting the direct costs of producing goods or services (COGS). It does not include operating expenses like rent, salaries, or marketing. Formula: Gross Profit = Revenue − COGS.

What is a good gross profit margin?

It depends on the industry. Software companies often have 70–90% gross margins. Retail typically runs 20–50%. Restaurants average 60–70% on food (but net margins are much lower after labor and rent). A higher gross margin means more money available to cover operating costs and generate net profit.

What is the difference between gross profit and net profit?

Gross profit = Revenue − COGS only. Net profit = Revenue − ALL expenses (COGS + operating expenses + taxes + interest). Gross profit shows production efficiency; net profit shows overall business profitability.

What counts as COGS (Cost of Goods Sold)?

COGS includes direct costs: raw materials, direct labor, manufacturing overhead, packaging, and shipping costs directly tied to production. It does NOT include indirect costs like marketing, admin salaries, rent, or utilities (those are operating expenses).

Business Finance

How to Calculate Gross Profit: Formula, Margin & Examples

Gross profit is the first and most fundamental profitability metric in business. It tells you how much money remains after paying for the direct costs of producing your product or service — before overhead, taxes, or other expenses. Understanding gross profit is essential for pricing, cost control, and business health.

The Gross Profit Formula

Gross Profit = Revenue − COGS

Gross Profit Margin = (Gross Profit ÷ Revenue) × 100

Revenue

Total sales income before any deductions

COGS

Cost of Goods Sold — direct production costs only

Gross Profit

What remains to cover operating expenses and profit

Gross Profit Calculator

Revenue ($)

Cost of Goods Sold / COGS ($)

Gross Profit

$20,000

Gross Margin

40.0%

COGS Ratio

60.0%

COGSGross Profit

Full Profit Calculator

Step-by-Step Examples

Example 1: E-commerce Store

Revenue

$80,000

COGS

$48,000

Gross Profit

$32,000

Margin

40%

COGS includes product cost, packaging, and shipping to customer.

Example 2: SaaS Company

Revenue

$200,000

COGS

$30,000

Gross Profit

$170,000

Margin

85%

COGS includes hosting, support staff, and third-party APIs.

Example 3: Restaurant

Revenue

$50,000

COGS

$18,000

Gross Profit

$32,000

Margin

64%

COGS is food and beverage cost only. Labor and rent are operating expenses.

Gross Profit Margin by Industry

Software / SaaS70–90%

Financial Services60–80%

Healthcare40–60%

Retail (General)20–50%

Food & Beverage30–50%

Manufacturing20–40%

Construction15–25%

Grocery / Supermarket20–30%

Benchmarks vary by company size, pricing strategy, and market conditions.

Gross Profit vs Net Profit: What's the Difference?

Metric	Formula	What It Shows
Gross Profit	Revenue − COGS	Production efficiency
Operating Profit	Gross Profit − Operating Expenses	Core business profitability
Net Profit	Operating Profit − Taxes − Interest	Overall bottom line