Gross Profit

Financials

Industry:

Sector Agnostic

Aliases:

Gross Margin Dollars

Gross Earnings

Back to Metric Dictionary

Short Definition

Gross Profit ($) is revenue minus Cost of Sales — i.e., the money left after the direct costs to make and deliver your product/service.

Short Definition

Gross Profit ($) is revenue minus Cost of Sales — i.e., the money left after the direct costs to make and deliver your product/service.

Short Definition

Gross Profit ($) is revenue minus Cost of Sales — i.e., the money left after the direct costs to make and deliver your product/service.

Why it matters for Investors

  • Pricing power & unit economics: Higher gross profit means more value per sale.

  • Fuel for growth: Pays for OpEx (Sales and Marketing Expenses, Research and Development Expenses, General and Administrative Expenses); more Gross Profit (GP) → more to invest.

  • Comparability: Lets you compare products, channels, and companies fairly.

Why it matters for Investors

  • Pricing power & unit economics: Higher gross profit means more value per sale.

  • Fuel for growth: Pays for OpEx (Sales and Marketing Expenses, Research and Development Expenses, General and Administrative Expenses); more Gross Profit (GP) → more to invest.

  • Comparability: Lets you compare products, channels, and companies fairly.

Why it matters for Investors

  • Pricing power & unit economics: Higher gross profit means more value per sale.

  • Fuel for growth: Pays for OpEx (Sales and Marketing Expenses, Research and Development Expenses, General and Administrative Expenses); more Gross Profit (GP) → more to invest.

  • Comparability: Lets you compare products, channels, and companies fairly.

Formula

Direct costs are the “make + deliver” costs that go up with each sale.

They include: parts/materials (the BOM), workers who build/fulfill, shipping materials to you (inbound freight), storage/packing/returns, servers/hosting/CDN to deliver the product, third-party API/data fees, credit-card/payment processing fees, and partner/marketplace fees (take rate).

Practical considerations -

  • Set the rulebook: Write what sits in COGS vs OpEx — and stick to it.

  • Match bases: If revenue is “adjusted,” use matching COGS (and reconcile to GAAP).

  • Delivery costs belong in COGS: Hosting/CDN, payments, APIs, freight, packaging.

  • Pass-throughs: If you gross up revenue, include the matching costs in COGS (or report net).

  • Per-product tracking: View GP by SKU/plan/channel/region; blends hide leakage.

  • Clean up one-offs: Flag unusual items (write-offs, true-ups) so trends stay clear.

Formula

Direct costs are the “make + deliver” costs that go up with each sale.

They include: parts/materials (the BOM), workers who build/fulfill, shipping materials to you (inbound freight), storage/packing/returns, servers/hosting/CDN to deliver the product, third-party API/data fees, credit-card/payment processing fees, and partner/marketplace fees (take rate).

Practical considerations -

  • Set the rulebook: Write what sits in COGS vs OpEx — and stick to it.

  • Match bases: If revenue is “adjusted,” use matching COGS (and reconcile to GAAP).

  • Delivery costs belong in COGS: Hosting/CDN, payments, APIs, freight, packaging.

  • Pass-throughs: If you gross up revenue, include the matching costs in COGS (or report net).

  • Per-product tracking: View GP by SKU/plan/channel/region; blends hide leakage.

  • Clean up one-offs: Flag unusual items (write-offs, true-ups) so trends stay clear.

Formula

Direct costs are the “make + deliver” costs that go up with each sale.

They include: parts/materials (the BOM), workers who build/fulfill, shipping materials to you (inbound freight), storage/packing/returns, servers/hosting/CDN to deliver the product, third-party API/data fees, credit-card/payment processing fees, and partner/marketplace fees (take rate).

Practical considerations -

  • Set the rulebook: Write what sits in COGS vs OpEx — and stick to it.

  • Match bases: If revenue is “adjusted,” use matching COGS (and reconcile to GAAP).

  • Delivery costs belong in COGS: Hosting/CDN, payments, APIs, freight, packaging.

  • Pass-throughs: If you gross up revenue, include the matching costs in COGS (or report net).

  • Per-product tracking: View GP by SKU/plan/channel/region; blends hide leakage.

  • Clean up one-offs: Flag unusual items (write-offs, true-ups) so trends stay clear.

Worked Example

Line Item

Amount

Notes

Revenue

$50,000,000

Per policy (GAAP or non-GAAP; match with COGS)

Inventory/Bill of Materials + Inbound Freight

$18,500,000

Product Cost

Warehousing/ Packaging/ Returns

$3,000,000

Fulfilment & reverse logistics

Third-party APIs/ Processing

$1,000,000

Delivery-linked data/ API/ Processing

Total Cost of Sales

$22,500,000

$18.5M+$3M+$1M

Gross Profit

$27,500,000

Revenue - Cost of Sales


Notes:

  • Don’t mix bases: If revenue is non-GAAP, COGS must be non-GAAP (with reconciliation).

  • Pass-throughs: If you gross up revenue for pass-through items, include matching costs in COGS (or report net).

  • Multi-product: Always review GP by SKU/plan/channel to find margin leaks.

Worked Example

Line Item

Amount

Notes

Revenue

$50,000,000

Per policy (GAAP or non-GAAP; match with COGS)

Inventory/Bill of Materials + Inbound Freight

$18,500,000

Product Cost

Warehousing/ Packaging/ Returns

$3,000,000

Fulfilment & reverse logistics

Third-party APIs/ Processing

$1,000,000

Delivery-linked data/ API/ Processing

Total Cost of Sales

$22,500,000

$18.5M+$3M+$1M

Gross Profit

$27,500,000

Revenue - Cost of Sales


Notes:

  • Don’t mix bases: If revenue is non-GAAP, COGS must be non-GAAP (with reconciliation).

  • Pass-throughs: If you gross up revenue for pass-through items, include matching costs in COGS (or report net).

  • Multi-product: Always review GP by SKU/plan/channel to find margin leaks.

Worked Example

Line Item

Amount

Notes

Revenue

$50,000,000

Per policy (GAAP or non-GAAP; match with COGS)

Inventory/Bill of Materials + Inbound Freight

$18,500,000

Product Cost

Warehousing/ Packaging/ Returns

$3,000,000

Fulfilment & reverse logistics

Third-party APIs/ Processing

$1,000,000

Delivery-linked data/ API/ Processing

Total Cost of Sales

$22,500,000

$18.5M+$3M+$1M

Gross Profit

$27,500,000

Revenue - Cost of Sales


Notes:

  • Don’t mix bases: If revenue is non-GAAP, COGS must be non-GAAP (with reconciliation).

  • Pass-throughs: If you gross up revenue for pass-through items, include matching costs in COGS (or report net).

  • Multi-product: Always review GP by SKU/plan/channel to find margin leaks.

Best Practices

  • Publish definitions of Revenue and COGS; apply consistently period-to-period.

  • Keep delivery costs in COGS (hosting, payments, APIs, freight, packaging, returns).

  • Update reserves and rates monthly (returns, warranties, inventory, cloud rate cards).

  • Segment (product, customer size, channel, region) and review price–mix–volume–cost drivers.

  • Report both Gross Profit ($) and Gross Margin (%); watch incremental margin on new revenue.

Best Practices

  • Publish definitions of Revenue and COGS; apply consistently period-to-period.

  • Keep delivery costs in COGS (hosting, payments, APIs, freight, packaging, returns).

  • Update reserves and rates monthly (returns, warranties, inventory, cloud rate cards).

  • Segment (product, customer size, channel, region) and review price–mix–volume–cost drivers.

  • Report both Gross Profit ($) and Gross Margin (%); watch incremental margin on new revenue.

Best Practices

  • Publish definitions of Revenue and COGS; apply consistently period-to-period.

  • Keep delivery costs in COGS (hosting, payments, APIs, freight, packaging, returns).

  • Update reserves and rates monthly (returns, warranties, inventory, cloud rate cards).

  • Segment (product, customer size, channel, region) and review price–mix–volume–cost drivers.

  • Report both Gross Profit ($) and Gross Margin (%); watch incremental margin on new revenue.

FAQs

  1. Gross Profit vs. Gross Margin?
    Gross Profit is a dollar amount. Gross Margin (%) = Gross Profit ÷ Revenue × 100.

  2. What belongs in COGS?
    Only direct costs to make/deliver the product/service (see list above). Sales and Marketing Expenses, Research and Development Expenses, and General and Administrative Expenses are in OpEx, not COGS.

  3. Where do shipping and payment fees go?
    If they’re required to deliver/fulfil the sale, put them in COGS.

  4. Can Gross Profit be negative?
    Yes — heavy discounting, high returns, or high variable costs can push COGS above revenue.

  5. Gross Profit vs. Contribution Margin?
    Contribution Margin subtracts all variable costs (may include some OpEx); Gross Profit subtracts COGS only.

  6. Gross Profit vs. Operating Income?
    Operating Income = Gross Profit − OpEx (Sales and Marketing Expense, Research and Development Expense, General and Administrative Expense).

FAQs

  1. Gross Profit vs. Gross Margin?
    Gross Profit is a dollar amount. Gross Margin (%) = Gross Profit ÷ Revenue × 100.

  2. What belongs in COGS?
    Only direct costs to make/deliver the product/service (see list above). Sales and Marketing Expenses, Research and Development Expenses, and General and Administrative Expenses are in OpEx, not COGS.

  3. Where do shipping and payment fees go?
    If they’re required to deliver/fulfil the sale, put them in COGS.

  4. Can Gross Profit be negative?
    Yes — heavy discounting, high returns, or high variable costs can push COGS above revenue.

  5. Gross Profit vs. Contribution Margin?
    Contribution Margin subtracts all variable costs (may include some OpEx); Gross Profit subtracts COGS only.

  6. Gross Profit vs. Operating Income?
    Operating Income = Gross Profit − OpEx (Sales and Marketing Expense, Research and Development Expense, General and Administrative Expense).

FAQs

  1. Gross Profit vs. Gross Margin?
    Gross Profit is a dollar amount. Gross Margin (%) = Gross Profit ÷ Revenue × 100.

  2. What belongs in COGS?
    Only direct costs to make/deliver the product/service (see list above). Sales and Marketing Expenses, Research and Development Expenses, and General and Administrative Expenses are in OpEx, not COGS.

  3. Where do shipping and payment fees go?
    If they’re required to deliver/fulfil the sale, put them in COGS.

  4. Can Gross Profit be negative?
    Yes — heavy discounting, high returns, or high variable costs can push COGS above revenue.

  5. Gross Profit vs. Contribution Margin?
    Contribution Margin subtracts all variable costs (may include some OpEx); Gross Profit subtracts COGS only.

  6. Gross Profit vs. Operating Income?
    Operating Income = Gross Profit − OpEx (Sales and Marketing Expense, Research and Development Expense, General and Administrative Expense).

Related Metrics


Commonly mistaken for: Contribution Margin, Operating Income, EBITDA, Net Income

Related Metrics


Commonly mistaken for: Contribution Margin, Operating Income, EBITDA, Net Income

Related Metrics


Commonly mistaken for: Contribution Margin, Operating Income, EBITDA, Net Income

Source of:

EBITDA

Gross Margin %

EBIT

Components:

Revenue

Cost of Sales

Back to Metric Dictionary

‹ Gross Bookings

‹ Gross Bookings

Headcount ›

Headcount ›

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Index

Short Definition

Why it matters for Investors

Formula

Worked Example

Best Practices

FAQs

Related Metrics

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