![]() The gross profit formula is: Gross Profit = Revenue – Cost of Goods Sold. It does not include the costs of running your business, such as taxes, interest and depreciation. It shows you clearly how much money you’re bringing in from your total sales. It is the total amount of income your company generates from the sale of your products or services. Direct labour costs associated to production.Raw materials or parts needed in manufacturing.It does not include indirect costs, such as staff salaries or sales and marketing. The cost of goods sold refers to all the direct costs and expenses involved in producing or delivering your goods and services. Let’s look at each of these in more detail. Gross profit is calculated by subtracting the cost of goods sold (COGS) from the total revenues. The gross profit margin calculation measures the money left from the sale of your goods or services, once the operating expenses used to generate them are deducted (e.g. Here's a look at how to calculate gross profit. "Having a deep understanding of your profit margins allows you to be adaptable and pivot at speed, while providing proactive leadership and fact-based decision making." "Understanding your profit margins is particularly essential in navigating volatile times," says Claude Compton, founder of Pave Projects, a London-based hospitality group. ![]() If you own a business, monitoring your profit margins regularly will give you the valuable data you need to identify the most lucrative areas of your business and scale them.
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