They’re both “profit,” but they answer different questions. One tells you if your products work; the other tells you if your business does.
Gross profit
Revenue − COGS
Do the products make money?
Net profit
Revenue − all costs
Does the business make money?
Gross profit stops after the cost of goods sold. Net profit keeps going, subtracting operating expenses, interest and taxes until you reach the true bottom line.
Here’s a simplified monthly income statement showing how the two profits sit at different points on the way down:
| Revenue | $50,000 |
| − Cost of goods sold | $20,000 |
| = Gross profit | $30,000 |
| − Operating expenses | $18,000 |
| − Interest & taxes | $4,000 |
| = Net profit | $8,000 |
The same business shows a healthy 60% gross margin but a 16% net margin. Both are true — they just describe different layers of the business.
A wide gap between gross and net profit means overheads are eating your product profits. A narrow gap means the business is lean. Watching only gross profit is how sellers end up “busy but broke” — every sale looks profitable, yet nothing reaches the bank.
To judge whether your net margin is healthy, compare it against typical ranges in good profit margin by industry.
How to Calculate Profit Margin
The profit margin formula explained with step-by-step worked examples.
Margin vs Markup
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How to Price a Product
A step-by-step pricing method that protects your margin from day one.
What Is a Good Profit Margin?
Healthy margin benchmarks by industry and how to know where you stand.
How to Calculate Break-Even Point
The break-even formula, contribution margin, and how many units you must sell.
Cost of Goods Sold (COGS)
What counts as COGS, what doesn't, and the formula to calculate it.
Average Order Value (AOV)
The AOV formula, why it matters, and proven ways to increase it.
How Discounts Affect Profit Margin
Why a small discount cuts profit hard, and the extra volume needed to break even.
Contribution Margin
What contribution margin is, the formula, and how it drives break-even.
Fixed vs Variable Costs
The difference, why it matters for pricing, and how to classify your costs.
Keystone Pricing
The classic 2x markup rule — what it is, the margin it gives, and when to use it.
Retail vs Wholesale Pricing
How to price for both channels without eroding your retail margin.
How to Calculate ROI
The return on investment formula with worked examples for stock and ads.
How to Increase Profit Margin
Ten practical, tested ways to widen your margin without losing sales.
Profit Margin Calculator
Sale price, margin, markup, or cost — four modes for any scenario.
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Net profit, margin and ROI after Amazon referral, fulfillment and storage fees.
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Net payout after eBay's final value fee, per-order charge and international fees.
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Real profit per sale after Shopify payment processing, surcharges and plan share.
Gross profit is revenue minus the cost of goods sold — it shows whether your products make money. Net profit is what's left after every other expense too: operating costs, taxes and interest. Net profit is the real bottom line; gross profit is an earlier, higher figure.
Gross profit = revenue − cost of goods sold (COGS). If you sell $50,000 of product that cost you $20,000 to make or buy, your gross profit is $30,000, a 60% gross margin.
Net profit = revenue − COGS − operating expenses − interest − taxes. Starting from gross profit, subtract everything else the business spends. It's the amount that actually ends up as profit for the owner.
Yes, and it's common. A business can sell products profitably (positive gross profit) yet still lose money overall if rent, wages, advertising and other overheads exceed that gross profit. This is why watching only gross margin is dangerous.
Both matter, for different reasons. Gross profit tells you if your pricing and product costs work. Net profit tells you if the whole business is viable. Improve gross margin to give yourself room, then control overheads to protect net profit.