Gross profit is the money a business keeps after subtracting the cost of goods sold (COGS) from revenue. It shows how efficiently a business is producing or sourcing its products.
Formula
Gross Profit = Revenue – Cost of Goods Sold (COGS)Example:
If your pet store has $40,000 in revenue and $24,000 in COGS:
Gross Profit = $40,000 – $24,000 = $16,000Why It Matters
Gross profit tells you how much money is left to cover other expenses—like rent, salaries, marketing, and utilities—and to make a profit. A strong gross profit means your markup and sourcing are solid. A weak one could mean pricing is too low, or product costs are too high.
Tip: Gross profit is different from net profit, which accounts for all other operating expenses.