Gross profit is an important measure of a business’s financial performance. It shows how much revenue remains after subtracting the direct costs associated with producing or purchasing the goods or services sold.
Use this gross profit calculator to calculate gross profit and gross profit margin from your revenue and cost of goods sold (COGS).
What Is Gross Profit?
Gross profit is the amount a business earns from its sales after deducting the direct costs associated with those sales.
The basic formula is:
Gross Profit = Revenue − Cost of Goods Sold
Gross profit does not normally account for operating expenses such as marketing, rent, administrative salaries, insurance, interest or taxes.
Gross Profit Margin
Gross profit margin expresses gross profit as a percentage of revenue.
The formula is:
Gross Profit Margin = (Gross Profit ÷ Revenue) × 100
For example, if a business generates $50,000 in revenue and has $30,000 in COGS:
Gross Profit = $50,000 − $30,000 = $20,000
The gross profit margin is:
$20,000 ÷ $50,000 × 100 = 40%
How to Use the Gross Profit Calculator
Enter your total Revenue.
Enter your Cost of Goods Sold (COGS).
Click Calculate Gross Profit.
Review your gross profit and gross profit margin.
What Is Cost of Goods Sold?
Cost of goods sold, commonly abbreviated as COGS, represents the direct costs associated with producing or acquiring the goods sold by a business.
Depending on the business, COGS can include items such as materials, inventory purchases, manufacturing costs and other directly attributable production costs.
The exact accounting treatment can vary depending on the type of business and accounting method used.
Why Is Gross Profit Important?
Gross profit helps businesses understand whether their products or services generate enough revenue after direct costs to support the rest of the business.
A healthy gross profit can provide money to cover operating expenses and ultimately generate net profit.
Businesses can monitor gross profit over time to identify changes in pricing, direct costs and product performance.
Gross Profit vs. Net Profit
Gross profit and net profit are not the same.
Gross profit subtracts direct costs such as COGS from revenue.
Net profit goes further and accounts for additional business expenses such as operating expenses, interest and taxes.
For this reason, a company can have a positive gross profit but still have a negative net profit.
Frequently Asked Questions
What is the formula for gross profit?
Gross profit is calculated by subtracting cost of goods sold from revenue.
What is gross profit margin?
Gross profit margin is gross profit expressed as a percentage of total revenue.
Can gross profit be negative?
Yes. If COGS is greater than revenue, gross profit will be negative.
Is gross profit the same as revenue?
No. Revenue represents sales generated by the business, while gross profit is the amount remaining after deducting COGS.
What is a good gross profit margin?
There is no universal ideal gross profit margin. It varies significantly by industry, business model, pricing strategy and cost structure.
