Gross Profit is a financial metric that shows the profit earned by a business after deducting the cost of goods sold from its revenue. It represents the amount of money left after accounting for the direct expenses associated with producing and selling a particular product or service.
With Databox you can track all your metrics from various data sources in one place.
Gross profit is a financial metric that represents the amount of money a company earns from its core business operations after deducting the direct costs associated with producing or delivering its products or services. It’s one of the most important metrics companies look at when analyzing their operational efficiency and cost-effectiveness.
You can calculate your gross profit by subtracting the cost of goods sold from the total revenue.
Here’s the exact formula:
Gross Profit = Total Revenue – Cost of Goods Sold
For example, if a company has a total revenue of $500,000 and the cost to produce the service is $100,000, we see that the gross profit amounts to $400,000.
Due to the wide range of factors that influence a business’s gross profit, we can’t really put a pin on what’s good or not. You need to consider things like industry, business mode, size, and the overall economy.
For example, a good gross profit margin in the aviation sector would fall in the range of 10-20%. In the consulting industry and similar service-based businesses, it can go up to 40%.
On the other hand, software companies have a higher gross profit rate, often in the range of 70-90%, due to the low cost of duplicating their service once it’s developed.
Here’s also some data directly from our product:
A good gross profit in QuickBooks is around $50,000 to $80,000, according to QuickBooks Benchmarks for All Companies.
A good gross profit in Xero is $44,000, according to Xero Benchmarks for All Companies.
If you want to stay on top of future trends and be able to instantly compare your performance to companies just like yours (in any given industry), you can join our Benchmark Groups – it’s free for everyone!
There is no one-size-fits-all approach to increasing your gross profit. Each business requires a tailored strategy based on its product, market conditions, and operational efficiency. However, after talking with seasoned industry leaders, we’ve compiled a few strategies that can bring some solid results in each industry.
More resources to help you improve:
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Databox is a business analytics software that allows you to track and visualize your most important metrics from any data source in one centralized platform.
To track Gross Profit using Databox, follow these steps:
Net profit takes gives a more granular view of your business’s finance. It deducts all business expenses, including operating expenses, interest, taxes, and cost of goods sold, from your total revenue. Gross profit only deducts the direct costs associated with producing your goods or services.
While gross profit is displayed through a dollar amount, the gross profit margin presents this value as a percentage, showing the proportion of each dollar of revenue that you retain as gross profit.
Let’s say a company produces and sells high-quality laptops. They manufacture each laptop for $500 and sell each one for $1,200. Thus, the gross profit for each laptop sold would be the selling price minus the cost to produce. Gross Profit = Selling Price – Cost of Goods Sold Gross Profit = $1,200 – $500 Gross Profit = $700 For each laptop sold, the company makes a gross profit of $700.
The Profit and Loss by Subtype metric in Xero allows users to view their company's income and expenses broken down by specific subcategories, providing a detailed analysis of the financial performance of each area of the business.
The Cash Received by Bank Account metric tracks the total amount of cash received by a specific bank account over a given period of time. It includes all payments, deposits, and other sources of revenue that have been credited to the account.
Cash Spent is a financial metric that tracks the total amount of cash a company has spent over a given period of time. It helps businesses assess their expenses and manage their cash flow effectively.
The Current Non-liabilities by Liability metric is a ratio that compares a company's short-term assets that aren't liabilities to its short-term liabilities.
The Overdue Payments metric in Xero tracks the total amount of unpaid invoices that are past their due date, giving businesses insight into their outstanding receivables.
The Debtors metric in Xero measures the total amount of money owed to a company by its customers, indicating the level of outstanding debts and the company's ability to collect payment.
The Quotes Accepted metric in Xero measures the total value of quotes that have been accepted by customers, indicating a successful conversion of sales.
Quotes Sent Value measures the total monetary amount of quotes sent to customers during a specific timeframe in Xero accounting software.