Gross profit is the initial profit a business earns from buying and selling goods — before deducting operating expenses like rent, salaries, or utilities. The formula is simple: Gross Profit = Total Revenue - Cost of Goods Sold (COGS).
For example, say you buy a product for $60 and spend $10 on shipping. Your total cost (COGS) is $70. If you sell that product for $100, your gross profit is $30. That is the money left over before you pay for things like office rent or employee wages.
Gross profit tells you how efficiently your core business is running. A healthy gross profit margin means your product pricing and sourcing are on the right track. If it is shrinking, it is a signal to rethink your costs or pricing strategy.