Result
Gross profit
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
Gross profit = revenue − cost of goods sold (COGS). It's an absolute dollar amount, not a percentage — the percentage version, gross margin, is a separate metric.
The absolute amount and the percentage answer different questions. A business with $500,000 gross profit and a 20% margin and one with $300,000 gross profit and a 40% margin are fundamentally different cases: the first runs high volume at a thin markup, the second runs lower volume at a fat margin. Pricing and margin decisions care more about the percentage; whether there's enough money to cover fixed costs cares more about the absolute amount.
Cost of goods sold covers direct costs of production or purchasing only: materials, raw goods, direct labor. Rent, marketing, office salaries aren't part of it — those are operating expenses, subtracted later on the way to operating and net profit.