Gross Profit vs Net Profit

Definition of Gross Profit vs Net Profit

The cost of goods sold is different from operating expenses, which are fixed costs that do not directly depend on the company‘s output. These include rent, management salaries, marketing, insurance, and others.

When you subtract operating expenses from the gross profit, that number is the operating income. It is usually a much lower number than gross profit because it deducts other major expense items.

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What Is the Difference Between Net Profit and Gross Profit?

After subtracting all expenses, including non-operating expenses like interest and taxes, what is left is net income (also called net profit or earnings).

Here’s how to calculate the three main levels of profit:

  1. Gross Profit = Revenue – Cost of Goods Sold
  2. Operating Income = Gross Profit – Operating Expenses
  3. Net Profit = Operating Income – Other Costs

Gross Profit vs Net Profit FAQs

Gross profit is the sum total of all income earned in a given year for an individual or a company.
After subtracting all expenses from revenue, including non-operating expenses like interest and taxes, what is left is net profit.
Gross Profit = Revenue – Cost of Goods Sold
Net Profit = Operating Income – Other Costs
True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.