Gross Profit vs Net Profit: feature by feature
| Gross Profit | Net Profit | |
|---|---|---|
| What it measures | Revenue minus cost of goods sold | Revenue minus all expenses |
| Formula | Sales minus COGS | Gross profit minus operating expenses |
| What a weak number means | Pricing too low or COGS too high | Overheads are eating the business |
| Useful for | Pricing decisions, supplier negotiations | Overall business health, tax |
| Typical target (retail) | 25 to 45% | 5 to 20% |
| Can be high while... | ...net profit is negative (overhead is the problem) | ...gross profit is low (buying too expensive) |
How to choose
Choose Gross Profit if
- You want to know if your products are priced correctly relative to what they cost you to buy
Choose Net Profit if
- You want to know if the business overall is making or losing money
More detail
A common trap is celebrating a healthy gross profit while rent, salaries and loan repayments quietly consume it all. A 40% gross margin business can still make zero net profit.
A POS that shows margin per product tells you which lines carry the weight. A simple report that subtracts fixed costs tells you if the weight is enough.
Frequently asked questions
Which is more important, gross or net profit?
Both are essential. Use gross profit to fix pricing and buying. Use net profit to decide if the business is viable.
How do I improve net profit without raising prices?
Cut COGS (better supplier terms), reduce waste, and audit fixed costs. The margin calculator shows the impact of each move.
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