What is Gross Profit?

Gross profit is revenue minus the direct cost of producing the goods or services sold, showing how much money a business keeps from each sale before operating expenses.

Gross profit isolates the efficiency of production and pricing. Cost of goods sold (COGS) includes raw materials, direct labour and manufacturing overhead — but excludes sales, marketing, R&D, rent and admin.

Gross margin (gross profit ÷ revenue) is the comparable metric across firms and industries. Software businesses typically run 70–90% gross margin; supermarkets 20–30%; commodity manufacturers 5–15%. A falling gross margin warns of pricing pressure or rising input costs.

Formula

Gross Profit = Revenue − Cost of Goods Sold

Example

A bakery sells CHF 500,000 of bread per year and pays CHF 200,000 in flour, yeast and baker wages — gross profit is CHF 300,000, a 60% gross margin.

Related terms

Revenue

Revenue is the total income a business generates from selling goods or services before any costs or expenses are deducted, also called the top line.

Operating Profit

Operating profit (or operating income, EBIT) is what a business earns from its core operations after deducting both the direct cost of sales and all operating expenses, but before interest and tax.

Profit Margin

Profit margin is a profitability ratio that expresses a company's profit as a percentage of its revenue, showing how many cents of profit are produced by each franc, euro or dollar of sales.

Income Statement

The income statement (or profit and loss statement, P&L) reports a company's revenues, expenses and profits over a specific period, showing whether the business made money and how.

Frequently asked questions

What is the difference between gross profit and net profit?+

Gross profit only deducts COGS; net profit also deducts operating expenses, interest and tax.

What costs go into COGS?+

Direct, variable costs of producing the unit sold — materials, direct labour and factory overhead.

What is a healthy gross margin?+

It depends entirely on the industry; compare against competitors, not absolute benchmarks.