What is gross profit?
Gross Profit is the amount of money your business makes after paying for the goods or materials needed to produce or sell your product or service. As always, you need to decide on a time within which these calculations are made. One month is the usual time used.
It shows how profitable your sales are before subtracting other expenses like rent, salaries, and marketing. There are two amounts important for this calculation:
Total revenue
If you run a small business and sell goods or services, Total Revenue is the sum of all the money customers pay you. It Doesn’t Include:
- VAT (if you’re VAT-registered, revenue is usually shown excluding VAT)
- Costs (like ingredients or packaging)
- Expenses (like rent or salaries)
- Refunds (unless you subtract them)
Cost of goods sold (COGS)
Cost of Goods Sold (COGS) is what it cost you to produce or buy what you sold. Click here to see how to calculate COGS.