The short answer: gross profit is what’s left after you subtract the cost of the goods you sold from your sales. Net profit is what’s left after you also subtract every running expense — rent, salaries, bills, fees. Gross profit tells you if your pricing works; net profit tells you if the business works.
How to calculate each
- Gross profit = Sales − Cost of goods sold (COGS)
- Net profit = Gross profit − Operating expenses
Here’s a hypothetical month to see the two side by side. You sell 400,000 worth of goods. Those goods cost you 260,000 to buy, so your gross profit is 140,000. Your rent, wages and bills come to 100,000, so your net profit is 40,000. Same shop, two very different stories depending on which number you look at.
Why the difference matters
A healthy gross profit with a tiny (or negative) net profit means your buying and pricing are fine, but your overheads are eating everything — the fix is on the expense side. A weak gross profit means the problem is upstream, in what you pay for stock or what you charge for it. Knowing which number is the problem tells you exactly where to act.
Gross margin: the percentage to watch
Turn gross profit into a percentage — gross profit ÷ sales — and you get your gross margin. Tracking this month to month is one of the most useful habits in retail: a slowly falling margin is an early warning that discounts, rising supplier prices or product mix are quietly hurting you, long before it shows up in your bank balance.
How to see both numbers automatically
The reliable way to know both figures at any moment is to let your system calculate them as you trade — capturing the cost of every item sold and logging every expense. RushFlow shows live gross and net profit per branch from your real sales and costs, so you’re never guessing. See it in the live demo.