Gross Profit vs Net Profit
Both are profitability metrics, but they measure different things:
| Metric | Formula | Tells You |
|---|---|---|
| Gross Profit | Revenue − COGS | Product/service unit economics |
| Operating Income | Gross Profit − OpEx | Business model efficiency |
| Net Profit | Operating Income − Interest − Taxes | Owner returns |
When to Use Each
Gross Margin is best for: - Comparing products or SKUs - Benchmarking against direct competitors - Unit economics and pricing decisions
Net Margin is best for: - Overall business health assessment - Investor and lender reporting - Year-over-year performance tracking
Common Misconceptions
A high gross margin doesn't mean the business is profitable. Many high-growth companies have 70%+ gross margins but negative net margins because of heavy sales, marketing, and R&D spend. Gross margin shows the potential; net margin shows the reality.
Use the Net Profit Calculator to run the full income statement waterfall.