Gross profit vs net profit

Gross profit is revenue minus the cost of goods sold, which means the direct costs of making or buying what you sell. It shows how much each sale contributes before running costs.

With revenue of 100,000 and goods costing 60,000, gross profit is 40,000, a gross margin of 40%.

Net profit is what remains after all expenses: operating costs such as rent, salaries and marketing, plus interest and tax. It is the figure that finally belongs to the owners.

Continuing the example, if operating expenses are 25,000, profit before interest and tax is 15,000, a 15% margin. Interest and tax reduce it further.

A healthy gross profit with a weak net profit usually means overheads are too high. A low gross profit points to pricing or cost-of-goods problems.

Looking at both lets you see whether to fix prices, supplier costs or running costs first.

Use the profit calculator to subtract costs from revenue, and the margin calculator to turn the result into a percentage.

Track the figures month by month. Trends reveal more than a single period, especially in seasonal businesses.