Gross profit

What is gross profit?

Gross profit is what's left from revenue after subtracting the direct cost of delivering your product or service (COGS). It's the money available to cover operating expenses and, ideally, turn a profit. Expressed as a percentage of revenue it becomes gross margin, one of the clearest signals of a business's underlying economics.

Formula

Worked example

Why it matters for fast-growing companies

Gross profit sets the ceiling on everything downstream: every dollar of overhead, marketing, and profit has to come out of it. Thin gross profit forces enormous volume just to break even, while strong gross profit gives room to invest and absorb mistakes. Investors read it as a proxy for business quality.

Related terms

• Unit economicsCost of goods sold (COGS)Cost of goods sold (COGS) is the direct cost of producing and delivering what you sell, raw materials, direct labor, payment processing, hosting for a software product.
• Unit economicsGross marginGross margin is the share of revenue left after the direct cost of delivering your product, shown as a percentage.
• Accounting & closeOperating expenses (OpEx)Operating expenses are the costs of running your business that aren't tied directly to producing what you sell, salaries, rent, marketing, software, and admin.
• Unit economicsNet incomeNet income is the bottom line, what's left after subtracting every expense from revenue, including COGS, operating expenses, interest, and taxes.

Frequently asked questions