How Do You Calculate Gross Profit?

To calculate gross profit, subtract the cost of goods sold (COGS) from revenue. A shop that sells $50,000 of stock that cost it $32,000 makes a gross profit of $18,000. Divide gross profit by revenue to get the gross profit margin: $18,000 ÷ $50,000 = 36%.

The gross profit formula

Gross profit = Revenue − Cost of goods sold
Gross profit margin = Gross profit ÷ Revenue × 100

How to calculate gross profit, step by step

1. Add up revenue for the period: everything customers paid, minus returns and discounts.
2. Add up the cost of goods sold: what you paid for the products you sold, including freight in and direct materials or labour.
3. Subtract COGS from revenue. The result is gross profit.
4. Divide by revenue and multiply by 100 for the gross margin percentage.

Worked examples

What counts as cost of goods sold?

COGS includes the direct costs of the things you sold: purchase price of stock, shipping to get it to you, raw materials and the labour that makes the product. Rent, marketing, software and office salaries are operating expenses, not COGS, so they do not reduce gross profit. A service business with no products often uses the cost of delivering the service, such as contractor fees.

Gross profit versus net profit

Gross profit shows whether your products are priced above what they cost you. Net profit is what remains after every expense, interest and tax. A business can have a strong gross profit and a net loss if overheads are too high, which is why both numbers are tracked.

Common mistakes

• Using the cost of everything you bought instead of what you sold. Unsold stock is inventory, not COGS.
• Mixing up margin and markup: a 50% markup on cost is a 33.3% gross margin.
• Forgetting returns and discounts, which reduce revenue.

For a single product, the Profit Calculator gives the profit from a cost and a selling price, and the Profit Margin Calculator turns it into a margin.