What is gross profit?
Definition of gross profit
Gross profit is a business's income from sales minus those of its day-to-day outgoings that relate directly to making sales. These outgoings are sometimes referred to as ‘costs of sales’ or ‘costs of goods sold’ and include costs such as the materials a business needs to manufacture its goods.
How to calculate gross profit
A simple formula for calculating gross profit is:
Income from sales - costs of sales = gross profit
Gross profit margin
A business's gross profit divided by its sales is known as its gross profit margin. This can be a useful metric as it shows how much gross profit the business is making for every pound it earns in sales. Gross profit margin is always written as a percentage.
A simple formula for calculating gross profit margin is:
(Gross profit / income from sales) x 100 = gross profit margin
