How to use the gross profit formula

  • 2 min read
  • Last updated 2 Oct 2023

Calculation, gross profit formula and maths. That’s a lot of scary words in one sentence, eh? 😨

But, sometimes you have to face up to your fears. 🦸 It’s a cliche. We know. But, when it comes to owning your own business and managing your finances, there’s no hiding. 

Peekaboo. We’re going to tell you exactly how to calculate your gross profit formula. 

What does gross profit formula mean?

Gross profit formula refers to the way in which you calculate your total revenue minus costs. Gross profit means a business’s total profit before deducting costs such as expenses, overheads, and taxes

If you’re not financially savvy or, you’re just human, all this jargon can be quite confusing! Let’s break it down 👇

How to calculate gross profit

Before we hand over the formula, here’s a little context. Generally, gross profit includes variable costs and does not account for fixed costs. 🧰

Revenue is the amount of money made from sales of a company’s products and/or services during a specific time period (normally a year), before any expenses, taxes etc. are deducted. 

Gross profit assesses a company’s efficiency at using its labour and supplies in producing goods or services. 📋

These may include: 

  • Materials
  • Direct labour
  • Commissions for sales staff
  • Shipping
  • Credit card fees on customer purchases
  • Equipment
  • Utilities for the production site

Which formula is used to calculate gross profit?

Gross profit = Revenue – Cost of goods sold

Here’s an example: 

Let’s say your annual revenue is £30,000, and your cost of goods sold is £7,000. 

Gross profit = £30,000 – £7,000. 

So, you have a gross profit of £23,000. 🤑

Which formula is used to calculate gross profit as a percentage?

Gross profit percentage = gross profit ÷ sales revenue x 100

Let’s continue with the example above. 

Your gross profit is £23,000 and your revenue is £30,000. 

So, £23,000 ÷ £30,000 x100 = 77% 💸

What do I need to keep track of to calculate my gross profit?

Great question! To calculate your gross profit you’ll need to keep track of your business’s income and expenses, which is no easy task. 🕵️

Unless you use our free bookkeeping tools, of course. 🙌

  • Our accounting software gives you a 360 view of your finances. With everything all in one place, you can keep track of the income you’ll need to calculate your gross profit. 
  • Upload pictures of your receipts directly to TaxScouts and let our AI-powered data extraction tool pull your spending. Store them online until you’re ready to deduct them. 

But, that’s not all. Find out more about how our free bookkeeping tools can help you with all aspects of your business 👇

School’s out!

We hope you’ve been paying attention because now it’s time for you to put the gross profit formula into practice.

And your homework? Browse more of our free bookkeeping tools, and you can expect an A* 🎓

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