Gross profit

Gross profit is sales revenue less the cost of goods sold. It shows the amount available to cover operating expenses and other costs, but it is not the business's final net profit.

The calculation uses revenue and the costs assigned to the goods actually sold, not the cash spent buying all stock during the period. Unsold inventory is normally treated separately under the business's accounting policies. Gross profit is an amount of money, whereas gross margin often expresses the same relationship as a percentage of sales.

For example, selling 100 items for £20 each when their cost is £12 each gives £800 gross profit. Rent, marketing and other operating expenses still need to be covered. Contribution margin uses a different cost boundary, deducting variable costs that may include selling or fulfilment costs outside cost of goods sold.