Gross Profit Calculator
Calculate gross profit, gross margin percentage, and analyze your cost of goods sold
Gross Profit Formulas
What is Gross Profit?
Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs of providing its services. It's calculated by subtracting the cost of goods sold (COGS) from total revenue. Gross profit appears on a company's income statement and is a key indicator of operational efficiency.
Unlike net profit, gross profit doesn't include overhead expenses like rent, utilities, marketing, or administrative costs. It focuses purely on the direct costs of production or service delivery. This makes it invaluable for understanding how efficiently you're producing and selling your core offerings.
For investors and analysts, gross profit and gross margin are critical metrics that reveal pricing power, production efficiency, and competitive positioning. A declining gross margin often signals trouble, while expanding margins indicate improving operational efficiency or pricing power.
Gross Profit vs Other Profit Metrics
Gross Profit
Revenue minus COGS only. Shows production/service delivery efficiency.
Operating Profit
Gross profit minus operating expenses (SG&A). Shows total operational efficiency.
Net Profit
Operating profit minus interest and taxes. The bottom line.
EBITDA
Operating profit before depreciation/amortization. Focuses on cash generation.
Gross Margin by Industry
Gross margins vary dramatically by industry due to different cost structures, competition levels, and business models.
| Industry | Low Margin | Average | High Margin |
|---|---|---|---|
| Software/SaaS | 70% | 80% | 90%+ |
| Luxury Goods | 50% | 65% | 80%+ |
| Pharmaceuticals | 60% | 70% | 85%+ |
| Apparel Retail | 40% | 50% | 60%+ |
| Restaurants | 55% | 65% | 75%+ |
| Grocery Stores | 20% | 25% | 35%+ |
| Auto Dealerships | 10% | 15% | 20%+ |
| Airlines | 15% | 25% | 35%+ |
Improving Gross Profit Margin
Raise Prices Strategically
Even small price increases significantly impact gross margin. Test increases on less price-sensitive products or add premium options.
Reduce COGS
Negotiate better supplier terms, find alternative materials, improve manufacturing efficiency, or reduce waste in production.
Optimize Product Mix
Focus sales efforts on higher-margin products. Consider discontinuing low-margin items that don't drive traffic.
Improve Operations
Invest in automation, reduce defects and returns, improve inventory management, and streamline the supply chain.
Frequently Asked Questions
What's a good gross profit margin?
It depends heavily on industry. For software companies, 70-80% is typical. For retailers, 25-50% is common. Compare your margin to industry benchmarks and competitors rather than using a universal target.
What's included in Cost of Goods Sold?
COGS includes all direct costs of production: raw materials, direct labor, manufacturing overhead directly tied to production, and freight-in costs. It excludes selling, general, and administrative expenses.
Why is my gross margin declining?
Common causes include rising material costs, increased competition forcing price cuts, less efficient production, changes in product mix toward lower-margin items, or supplier price increases not passed to customers.
Is gross profit the same as contribution margin?
No. Gross profit uses total COGS (including fixed manufacturing overhead), while contribution margin uses only variable costs. Contribution margin is more useful for decision-making about individual products.
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