Gross Profit vs Net Profit
Gross profit measures product or service economics. Net profit measures broader business profitability.
Gross profit formula
Gross Profit = Revenue - Cost of Goods SoldGross profit focuses on the direct cost of producing or delivering what you sell.
Net profit formula
Net Profit = Revenue - Total ExpensesNet profit includes a wider set of expenses, such as rent, software, payroll, marketing, interest, taxes, and other overhead.
Example
A business has $50,000 in revenue and $32,000 in cost of goods sold. Gross profit is $18,000.
If that same business also has $10,000 in operating expenses, net profit is $8,000 before any other adjustments.
When to use each number
Use gross profit to evaluate pricing and direct delivery costs. Use net profit to understand whether the whole business model is profitable.
Use the Gross Profit Calculator to calculate gross profit and gross margin from revenue and cost of goods sold.
FAQ
What is gross profit?
Gross profit is revenue minus cost of goods sold.
What is net profit?
Net profit is what remains after broader expenses such as operating costs, taxes, interest, and other costs are accounted for.
Which profit number should I track?
Track both. Gross profit helps with product or service economics, while net profit shows overall business profitability.