💼 Ever wonder how much money a business actually makes from selling a product or service—before paying rent, salaries, or other bills? That’s what gross profit is all about!
Let’s break it down, nice and easy. 💸
Table of Contents
🙋 What Is Gross Profit?
Gross profit is the money left over after you subtract the cost to produce or buy what you’re selling. It tells you how profitable your product or service is before taking into account things like advertising, rent, or staff.
Think of it like this:
Selling Price – Cost to Make It = Gross Profit
So if you sell a handmade candle for $20, and it cost you $8 in materials to make, your gross profit is $12. Easy, right?
✏️ The Gross Profit Formula
Here’s the official formula:
Gross Profit = Revenue – Cost of Goods Sold (COGS)Where:
- Revenue = The total money you make from selling
- COGS = The cost of goods sold (how much it cost to make or buy the items you sold)
🧮 Let’s Try an Example
You sell 10 custom t-shirts for $25 each.
- Revenue = 10 × $25 = $250
- Cost per shirt = $10, so total COGS = 10 × $10 = $100
Gross Profit = $250 – $100 = $150✅ You made $150 in gross profit!
🔍 Why It Matters
Gross profit shows:
- 💵 How much you’re really making per product
- 📈 If your prices are high enough
- 📉 If your costs are too high
It’s the first step in figuring out whether your business is financially healthy.
📝 Gross Profit vs. Net Profit
| Type of Profit | What It Includes |
|---|---|
| Gross Profit | Revenue – COGS |
| Net Profit | Revenue – all expenses (COGS, rent, payroll, taxes, etc.) |
So while gross profit shows how your product is doing, net profit shows the full financial picture.
⚡ Quick Tips
- Keep track of every cost related to your product (materials, packaging, production)
- Use this info to adjust your prices if needed
- Gross profit is often shown on your income statement if you’re running a business
👍 Final Thoughts
Calculating gross profit is one of the first and easiest ways to see how your business (or side hustle) is performing. It’s all about knowing what you’re really earning—so you can make smarter decisions and grow confidently.