Gross Profit
It is how many dollars are left after paying for what you sold, before rent, payroll, and other overhead.
Formal definition
Gross profit equals total revenue minus cost of goods sold (COGS) — the dollar margin before operating expenses, interest, and taxes.
Why it matters
You can have revenue and still fail if gross profit dollars cannot cover operating expenses — margin percent and dollars both matter.
Where you see it
- Monthly P&L statements
- SBA loan applications
- Investor update decks
- Franchise unit economics
- Management accounting courses
Worked example
- Revenue: $500,000.
- COGS: $200,000.
- Gross profit = $500,000 − $200,000 = $300,000.
- Interpretation: $300,000 available to cover OpEx and profit before overhead detail.
How Business metrics calculates it
Revenue − Cost of what you sold. Service businesses may enter $0 for cost of what you sold.
Where people fool themselves
Gross profit in dollars can grow while gross margin % shrinks. Volume is not a substitute for mix. Read both.
Run it on your own numbers: any industry calculator.