What is gross profit?
Gross profit is revenue minus the direct cost of what you sold (COGS). It is the pool of money available to cover marketing, salaries, rent, and everything else — and hopefully leave net profit.
Gross profit = Revenue − Cost of goods sold (COGS)
Gross margin % = Gross profit ÷ Revenue × 100
With $50,000 in revenue and $20,000 in COGS, gross profit is $30,000 and gross margin is 60%.
How to calculate gross profit (step by step)
- Total your revenue for the period — all sales, net of returns and discounts.
- Sum all COGS — direct costs of the products sold (not all costs; see below).
- Subtract COGS from revenue — that's gross profit in dollars.
- Divide gross profit by revenue × 100 — that's gross margin %.
Worked example: monthly ecommerce P&L
A DTC brand selling skincare products:
| P&L line | Amount | Notes |
|---|---|---|
| Revenue (net of returns) | $85,000 | After refunds and chargebacks |
| − Product cost (wholesale) | $21,250 | What the supplier charged |
| − Inbound shipping | $2,550 | Freight from supplier to warehouse |
| − Packaging | $1,700 | Boxes, inserts, mailers |
| = COGS total | $25,500 | All direct product delivery costs |
| Gross profit | $59,500 | |
| Gross margin | 70% | $59,500 ÷ $85,000 |
At 70% gross margin, the brand keeps $0.70 of every revenue dollar after product costs. That leaves $59,500 to cover marketing (typically 20–40% of revenue), operations, and profit. If gross margin were 40% instead, only $34,000 would be available — same revenue, dramatically less room for everything else.
Gross profit vs. net profit
Gross profit stops at product cost. Net profit also subtracts operating expenses, taxes, and interest. Marketing spend sits between gross and net — which is why ROAS and marketing ROI calculators ask for gross margin: they need to know how much of each sale is left after COGS before judging ad spend.
Quick margin-to-ROAS reference
| Gross margin | Break-even ROAS | What it means |
|---|---|---|
| 80% | 1.25x | Very forgiving — most ad spend is profitable |
| 60% | 1.67x | Healthy cushion |
| 50% | 2x | Standard retail benchmark |
| 40% | 2.5x | Tighter — needs decent ad efficiency |
| 25% | 4x | Thin — only high-performing campaigns work |
| 15% | 6.7x | Very thin — hard to run paid acquisition profitably |
Why marketers care about gross profit
Every ad dollar comes out of gross profit eventually. If gross margin is 40%, a 4x ROAS campaign barely breaks even on product cost alone, returning $1.60 for every $1 of ad spend after COGS. Use gross margin with the profit margin calculator for single-SKU checks, with ROAS for campaign-level profitability, and with the break-even calculator for minimum viable volume.
What counts as COGS?
For ecommerce, COGS is typically product cost plus inbound shipping and packaging. For SaaS, COGS is hosting, support, and third-party API costs tied to delivery — not engineering salaries. For services, COGS is direct labor and materials for that client. Be consistent so gross profit reflects the same costs your finance team uses. Do not include marketing, sales, or general admin in COGS — those come out of gross profit.