Revenue minus cost ofsales.
Calculating gross profit is relatively simple and straightforward. Here are thesteps:
- Calculate the total revenue generated by the sale of goods or services. This includes the sale price of the product or service, minus any returns, discounts, orallowances.
- Subtract the cost of goods sold (COGS) from the total revenue. COGS includes the cost of the materials or components used to produce the product, plus any direct labor and overhead costs associated with producing theproduct.
- The difference between the total revenue and the COGS is the gross profit. It's a measure of how much a company is earning from the sale of its products or services, before any expenses like rent, salaries, and taxes are taken intoaccount.
