What is "Gross Profit" meaning?

Gross profit is a financial metric that shows a company’s profitability after accounting for the direct costs of producing goods or services sold. It’s a key indicator of how efficiently a business is producing its goods or services.

Example

"The company’s gross profit margin improved by 5% this quarter, thanks to reduced manufacturing costs and higher sales."

How is "Gross Profit" used in business?

Gross profit is used to assess the efficiency of production and the profitability of a company’s core activities. It is crucial for analyzing the performance of a business before accounting for indirect expenses like marketing, administration, and taxes.

Pro Tip

Monitoring gross profit margins can help you understand whether your pricing strategy and production costs are in line with your revenue targets.

Related Terms

Net Profit, Cost of Goods Sold (COGS), Profit Margin, Revenue