Gross Profit vs. Net Profit

The profit is a profit. Right? Not so much when you factor into everything. There is a difference between gross profit and net profit. Here is the difference between gross profit and net profit. 

To better understand the differences between the two, we need to identify them separately.

What is gross profit?

The gross profit refers to the amount you have in your hands after subtracting the cost of products sold from the sale. For example, if you’re selling t-shirts for $30 that you spend $10 on each, your gross profit is $20. 

What is net profit?

The net profit shows the amount of money you’re left after deducting the allowable business expenses. For example, you sold a total of 10 shirts for the month. That would bring you a gross profit of $200. Suppose you sold these shirts on your website, and that’s how you go by your business. 

Let’s say the website’s operating costs are $50 per month with no other business expenses. That would bring your net profit to $150 a month. 

Identifying gross profit and net profit

As you can see from the examples above, it’s easy to identify gross and net profits. The best application of gross profit is to figure out whether or not a product is going to bring in enough earnings, whereas the net profit is a way to understand if your business is profitable.

Additionally, gross and net profits can tell a lot about your business expenses and give you a direction on where to cut spendings for certain products though the gross profit is high.