---
title: "Gross profit"
description: "What gross profit is, how to calculate gross profit and gross margin percentage, how it differs from net profit and contribution margin, with a worked example."
canonical: https://ledgeriano.com/glossary/gross-profit
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Gross profit

> What gross profit is, how to calculate gross profit and gross margin percentage, how it differs from net profit and contribution margin, with a worked example.

Gross profit is revenue minus the cost of goods sold. It shows how much a business earns from its products before operating expenses, interest and tax. Expressed as a percentage of revenue it becomes the gross margin, a key measure of pricing power and production or purchasing efficiency.

Gross profit sits near the top of an income statement presented by function, between cost of sales and operating expenses. A falling gross margin usually means rising purchase costs, discounting or a shift in sales mix toward cheaper products.

Gross margin is not the same as markup: a product bought for 60 and sold for 100 has a 40% gross margin but a 66.7% markup on cost. Use the [margin and markup calculator](https://ledgeriano.com/tools/margin-markup-calculator) to convert between the two. Gross profit also differs from [contribution margin](https://ledgeriano.com/glossary/contribution-margin), which deducts all variable costs, including variable selling costs, and excludes fixed production overhead.

```
Gross profit = Revenue - Cost of goods sold
Gross margin % = Gross profit / Revenue × 100
```

## Example: gross margin of an online shop

An online shop sells 250,000 of goods in a year. The goods cost 160,000 including inbound freight. Gross profit is 90,000 and the gross margin is 90,000 / 250,000 = 36%. Out of every 100 of sales, 36 is left to pay staff, rent, marketing and tax.

### What is a good gross margin?

It depends on the industry. Grocery retail often runs below 30%, while software can exceed 70%. Compare with your own history and with businesses that have a similar model.

### Is gross profit the same as net profit?

No. Net profit is what remains after deducting operating expenses, finance costs and income tax from gross profit.

Guide: https://ledgeriano.com/guides/financial-statements