Gross profit shows how much money a business makes from sales after subtracting the cost of goods sold (COGS). It’s a key figure that helps measure how profitable products or services are before other costs like rent, salaries, or marketing are considered.
How to Calculate Gross Profit
The formula is:
Revenue – Cost of Goods Sold (COGS)
Example:
If a business makes £15,000 in sales and the COGS is £9,000, the gross profit is:
15,000 – 9,000 = £6,000
This means the business has £6,000 left after covering direct costs.
Why Gross Profit Matters
Shows how much a business earns from its core products or services
Helps with pricing — low profit may mean prices are too low or costs are too high
Supports business decisions around scaling, investing, or cutting costs
What’s Included in COGS?
Raw materials
Direct labour (people making or assembling the product)
Manufacturing or production costs
It doesn’t include overheads like rent, admin, or marketing costs.