What is the difference between gross profit and net profit?

Gross profit is revenue minus the direct cost of goods sold. Net profit goes further and subtracts all other expenses too — overhead, salaries, marketing, taxes and interest. Gross profit measures product profitability; net profit measures overall business profitability.

What is included in cost of goods sold?

COGS includes the direct costs of producing or purchasing what you sold: raw materials, manufacturing labor, wholesale product cost and inbound shipping. It excludes indirect costs like rent, advertising and admin salaries.

What is a good gross margin?

There is no universal target gross margin. Margins vary substantially by industry, business model, and cost structure — some digital businesses run very high margins, while retail and food businesses often operate on lower margins. Compare your margin against your own trend over time and against businesses in your specific niche rather than a single benchmark figure.

Gross Profit Calculator - Free Gross Margin Calculator

Q: What is a gross profit calculator?

A gross profit calculator works out how much money your business keeps after subtracting the cost of goods sold (COGS) from revenue, and expresses it both as a dollar amount and as a gross margin percentage.

What is a gross profit calculator?

A gross profit calculator measures how profitable your core products or services are before overhead is taken into account. It subtracts your cost of goods sold (COGS) from your revenue and shows both the gross profit in dollars and the gross margin as a percentage. For small business owners and online sellers, gross profit is the foundation of every other profitability metric — if it is weak, no amount of cost-cutting elsewhere will save the business.

How the gross profit calculator works

Enter your total revenue for a period and the cost of goods sold for the same period. The calculator instantly returns your gross profit and gross margin, letting you compare products, seasons or sales channels quickly and accurately.

Gross profit formula

Gross Profit = Revenue − Cost of Goods Sold
Gross Margin = (Gross Profit ÷ Revenue) × 100

Example calculation

If your business earned $20,000 in revenue and the goods you sold cost $12,000, your gross profit is $20,000 − $12,000 = $8,000. Your gross margin is $8,000 ÷ $20,000 × 100 = 40%. That means 40 cents of every sales dollar is available to cover overhead and generate net profit.

Why gross profit matters for small businesses

Gross profit tells you whether your pricing and sourcing are fundamentally sound. A rising gross margin usually signals better pricing power or cheaper inputs, while a falling margin is an early warning of trouble. Because it isolates direct product economics, it is the cleanest way to judge whether a product line deserves more investment.

Compare the profitability of different products or categories.
Spot rising supplier costs before they erode profit.
Decide which products to promote, keep or discontinue.
Build accurate forecasts based on real product economics.

Pair this tool with our profit margin and break even calculators to get a complete view of your business finances.

Methodology & Accuracy

How this calculator produces its results, and the limits you should keep in mind when using them.

Formula source

The result is produced by the exact mathematical formula shown on this page. The formula is derived from the definition of the relationship between the inputs and the output (for example, profit margin is profit divided by revenue by definition). Where a formula relies on an external rule, rate, or convention, the authoritative source supporting that claim is linked in the Sources section below. The calculation has not been certified or approved by any professional body.

Assumptions

Calculations assume the figures you enter are accurate and apply to your situation. These are simplified models that may not capture every business scenario, and the estimates depend entirely on the values you select.

Uncertainty and limitations

Results are estimates based on the information entered. Actual financial outcomes may differ depending on business circumstances, market conditions, taxes, location, and other factors.

Tested with sample inputs

Tested with $20,000 revenue and $12,000 COGS: gross profit $8,000 and a 40% gross margin — matching the worked example on this page.

Ownership and testing

This calculator is maintained by Small Business Finance Toolkit. Its calculation can be checked using the sample figures shown on this page. It has not been certified or reviewed by a licensed financial professional. Found an error or outdated information? Contact us.

Review status

Sample checks are described above where available. A complete claim-by-claim publisher review is still pending.

Sources and references

The notes below identify the topics each reference supports. Worked scenarios and calculator outputs are illustrations, not endorsements by these organizations.

IRS — Publication 334, Tax Guide for Small BusinessU.S. tax reportingCovers gross profit calculated after subtracting cost of goods sold from applicable business receipts, and how COGS applies to product and service businesses.https://www.irs.gov/publications/p334

IRS — Schedule C (Form 1040) InstructionsU.S. tax reportingSchedule C is used by U.S. sole proprietors to report business profit or loss, including gross profit and cost of goods sold.https://www.irs.gov/instructions/i1040sc

Gross Profit Calculator