What is Gross Profit
Gross profit is the sum of money that a business earns from sales, after accounting for all variable costs and expenses.
Fixed cost items like rent, office supplies, health insurance premiums, tax payments and salaries should not be included in the calculation. However, employees who are generating billable hours need to have their allocated overhead expenses like benefits and payroll taxes accounted for.
Is there a Formula to calculate Gross Profit?
GP = Revenue – COGS
COGS* Cost of goods sold
Attempt to remain consistent when reporting gross profit figures over time, or the cost of goods will not be clear.
For example, if Your Business has a revenue of $100,000 for April and has a $10,000 in discount expenses, $20,000 from production raw materials, and $26,000 due to its factory overhead, the total amount of gross profit will be $44,000.
Tracking gross profit percentages over time can help businesses identify the primary factors that have led to changes in their profits.
Higher gross profit margins indicate that a company is maximizing its profits.