Financial metrics glossary
Gross profit: definition, formula and example
Gross profit is the money left from sales after paying the direct costs of producing or delivering what was sold. It is revenue minus cost of goods sold, and it is what remains to pay operating expenses and leave a profit.
Updated
Formula
- Gross profit = Revenue − Cost of goods sold
- Gross margin = Gross profit ÷ Revenue × 100%
Worked example
SampleSAMPLE · Northbridge Analytics, September 2026
Northbridge Analytics, the fictional software company in the Financial Analyst's public sample, from its P&L for September 2026, the prior month and the same month last year:
| Line | Sep 26 | Aug 26 | Sep 25 |
|---|---|---|---|
| Revenue | $163,156 | $144,547 | $117,890 |
| Cost of goods sold (direct costs) | $44,002 | $43,162 | $35,967 |
| Gross profit | $119,154 | $101,386 | $81,923 |
- Gross profit = $163,156 − $44,002 = $119,154
- Change on the prior month = $119,154 − $101,386 = +$17,768
- Gross margin = $119,154 ÷ $163,156 × 100% = 73.0%
Gross profit, September 2026: $119,154
Every figure here is the one the sample report prints in its P&L summary.
How to read it
- Gross profit is a dollar amount; gross margin is the same figure as a share of revenue. Read them together: gross profit can grow while the margin falls, when sales grow but direct costs grow faster.
- Gross profit has to cover every operating expense — salaries outside delivery, rent, marketing, software — before the business makes an operating profit. Set against operating expenses, it shows how far the company is from breaking even.
- What sits in cost of goods sold is a classification choice: delivery staff, hosting or freight can be booked above or below the gross-profit line. A change in classification moves gross profit without any change in the business, so compare periods booked the same way.
- Gross profit is an accrual figure: revenue counts when it is earned and costs when they are incurred. It says nothing about when the cash arrives.
Original research: Financial benchmarks for small US public companies, by industry →
Where it shows up in the monthly management report
Gross profit is on the report's cover and in its P&L summary, set against the prior month, the same month last year and the plan.
The “Monthly economics” page walks from revenue through direct costs to gross profit and breaks revenue and direct costs into their lines, so a change in gross profit can be traced to the line that caused it.
- Open the sample workspace — a fictional company's books, worked by the Financial Analyst, with its monthly report. No signup.
- The Financial Analyst — what it reads from your accounting system, what the report contains and what it costs.
Related metrics
-
Gross margin
The share of revenue left after the direct costs of what you sold.
-
Contribution margin
Revenue minus variable costs: what each sale adds toward fixed costs.
-
EBITDA
Operating profit with depreciation and amortization added back.
-
Budget vs actual
Each P&L line compared with its plan, in dollars and per cent.
Frequently asked questions
What is the difference between gross profit and gross margin?
Gross profit is the dollar amount left after direct costs; gross margin is gross profit divided by revenue, as a percentage. Revenue of $100,000 with $30,000 of direct costs gives $70,000 of gross profit and a 70% gross margin.
Is gross profit the same as net profit?
No. Gross profit subtracts only the direct costs of what was sold. Net profit also subtracts operating expenses, interest and tax.
What goes into cost of goods sold?
The costs that rise and fall with what is sold or delivered: materials, purchased goods, production or delivery labour, and for a software company typically hosting and customer support. Rent, marketing and administrative salaries are operating expenses.
Can gross profit be negative?
Yes, when direct costs exceed revenue. Each sale then loses money before any operating expense is paid.