{"id":14346,"date":"2022-12-16T03:35:00","date_gmt":"2022-12-16T08:35:00","guid":{"rendered":"https:\/\/onecommerce.io\/blog\/?p=14346"},"modified":"2023-04-16T12:25:21","modified_gmt":"2023-04-16T16:25:21","slug":"gross-profit-vs-gross-margin","status":"publish","type":"post","link":"https:\/\/onecommerce.io\/blog\/2022\/12\/16\/gross-profit-vs-gross-margin\/","title":{"rendered":"Gross Profit Vs Gross Margin: Differences &#038; Formulas To Calculate Them"},"content":{"rendered":"<p><i><span style=\"font-weight: 400;\">Gross Profit is calculated by subtracting revenues from Costs of Goods Sold (COGS). Meanwhile, Gross Margin is calculated by dividing your gross profit by revenue.\u00a0<\/span><\/i><\/p>\n<p><i><span style=\"font-weight: 400;\">Apparently, <\/span><\/i><a href=\"https:\/\/onecommerce.io\/blog\/gross-profit-vs-gross-margin\/#Gross_Profit_Vs_Gross_Margin\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\"><b><i>Gross Profit vs Gross Margin<\/i><\/b><\/a><i><span style=\"font-weight: 400;\"> are two different profitability metrics that serve different purposes.\u00a0<\/span><\/i><\/p>\n<p><i><span style=\"font-weight: 400;\">Let\u2019s discover the differences between Gross Profit vs Gross Margin and how to calculate them properly for your business!<\/span><\/i><\/p>\n<h2><b>What is Gross Profit?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Gross profit indicates the amount of money you earn after subtracting all the costs associated with making and selling your products.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400; font-size: 14pt;\"><strong><span class=\"penci-highlighted-one\">Formula:<\/span><\/strong> <strong>Gross Profit ($) = Total Revenue &#8211; Cost Of Goods Sold<\/strong><\/span><\/p>\n<p><span style=\"font-weight: 400;\">In the formula above:<\/span><\/p>\n<ul class=\"penci_list_shortcode penci_list-checklist\">\n<li><b>Total revenue<\/b><span style=\"font-weight: 400;\"> is the sum of income you earn from selling your products or services before subtracting any costs. On Profit &amp; Losses statements, total revenue sits on top, so it can also be known as the \u2018top line\u2019 while net income is the \u2018bottom line\u2019.<\/span><\/li>\n<li><a href=\"https:\/\/onecommerce.io\/blog\/cost-of-goods-sold\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\"><b>Costs Of Goods Sold<\/b><\/a><span style=\"font-weight: 400;\"> refer to all the direct costs associated with producing your finished goods. This includes costs of labor, materials, purchased goods, etc.<\/span><\/li>\n<\/ul>\n<h2><b>What is Gross Margin?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Gross margin, also called Gross Profit Margin, is calculated by dividing gross profit by total revenue. This metric is used to measure your business\u2019 financial efficiency. To be more particular, how much profit you can secure per dollar after deducting all the direct costs.<\/span><\/p>\n<p><span style=\"font-size: 14pt;\"><strong><span class=\"penci-highlighted-one\">Formula:<\/span> Gross Margin (%) = (Gross Profit \/ Total Revenue) * 100%<\/strong><\/span><\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr style=\"border-style: none;\">\n<td style=\"width: 100%; background-color: #f5f5f5; border-bottom: none;\">?<strong> Further reading:<\/strong><\/p>\n<ul class=\"penci_list_shortcode penci_list-checklist\">\n<li><strong><a href=\"https:\/\/onecommerce.io\/blog\/gross-profit-margin\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">What Is Gross Profit Margin &amp; How To Calculate It?<\/a><\/strong><\/li>\n<li><strong><a href=\"https:\/\/onecommerce.io\/blog\/calculating-the-profit-margin\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">5 Most Common Mistakes When Calculating The Profit Margin<\/a><\/strong><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><b>Gross Profit vs Gross Margin: So what is the difference?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Clearly, gross profit is a flat amount of money while gross margin is in percentage. And it should be noted that <\/span><b>you should view both metrics for a complete picture of your business\u2019s performance<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For instance, suppose that Company A and Company B sell the same product lines and they both have a Gross Profit of 1 million dollars. But Company A\u2019s revenue is 2 million dollars and Company B\u2019s revenue is 20 million dollars.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In this case:<\/span><\/p>\n<ul class=\"penci_list_shortcode penci_list-checklist\">\n<li><span style=\"font-weight: 400;\">Company A\u2019s GPM = 1\/2 = 50%<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Company B\u2019s GPM = 1\/20 = 5%<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">So if you just look at the Gross Profit, you won\u2019t be able to tell that company A is 10 times more financially efficient than company B.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">What we\u2019re trying to convey is that Gross Profit and Gross Margin have different purposes:<\/span><\/p>\n<ul>\n<li>\n<h3><b>The purposes of Gross Profit<\/b><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Calculating your gross profit will reveal how much money you will make after expenses during a specific time period. This can help you figure out how much profit to reinvest into your company.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">And since Gross profit is revenue subtracted from COGS, analyzing your Gross Profit together with revenue and costs will give you an idea of how good you\u2019re at managing material and labor costs.<\/span><\/p>\n<ul>\n<li>\n<h3><b>The purposes of Gross Margin<\/b><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Whereas, you should calculate your Gross Margin to do long-term planning<\/span><b>.<\/b><span style=\"font-weight: 400;\"> If your gross margin is steady over a sustained period, you can forecast a certain gross profit for every dollar of sales you make.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As you have a better understanding of your company&#8217;s financial situation, fully understanding your gross profit margin can help you run your operations more efficiently.<\/span><\/p>\n<p><strong><div class=\"wrap-block\" style=\"background-image: url('https:\/\/onecommerce.io\/blog\/wp-content\/uploads\/2022\/11\/color.png');background-repeat: no-repeat;background-size: cover;background-position: center;padding: 20px;\"><table style=\"width: 100%; border-collapse: collapse;\" cellpadding=\"30\">\r\n<tbody>\r\n<tr>\r\n<td style=\"width: 50%;\">\r\n<p class=\"h2\"><span style=\"color: #36ca98;\"><strong>Track all your Profits &amp; Losses in real-time<\/strong><\/span><\/p>\r\n<span style=\"color: #ffffff;\">With <span style=\"color: #36ca98;\">TrueProfit<\/span>, you can automatically monitor all your store's important metrics in one place.<\/span>\r\n\r\n<a href='https:\/\/onecommerce.io\/r\/rs638734e84449866de2ae04e9' class='pencisc-button pencisc-button__91312413' target='_blank' style='background-color:#36CA98;border-color:#36CA98;border-radius:5;color:#ffffff;'><strong>Start Tracking<\/strong><\/a><style>a.pencisc-button.pencisc-button__91312413:hover{ background-color:#ffffff !important;border-color:#ffffff !important;color:#36CA98 !important;}<\/style><\/td>\r\n<td style=\"width: 50%;\"><img class=\"alignnone size-full wp-image-13654\" src=\"https:\/\/onecommerce.io\/blog\/wp-content\/uploads\/2022\/11\/TP.png\" alt=\"\" width=\"600\" height=\"370\" title=\"\"><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table><\/div><style data-type=\"vc_shortcodes-custom-css\"><\/style><\/strong><\/p>\n<p><b style=\"font-family: Raleway, sans-serif; font-size: 22px; letter-spacing: 0px;\">Example of Gross Profit vs Gross Margin<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Take a look at the consolidated Profit &amp; Losses statement of Starbucks in the year 2022:<\/span><\/p>\n<ul class=\"penci_list_shortcode penci_list-checklist\">\n<li><b>Net sales<\/b><span style=\"font-weight: 400;\"> = $32,220 billion<\/span><\/li>\n<li><b>Cost of goods sold <\/b><span style=\"font-weight: 400;\">= $25,919 billion<\/span><\/li>\n<\/ul>\n<p><img class=\"aligncenter wp-image-14349 size-full\" src=\"https:\/\/onecommerce.io\/blog\/wp-content\/uploads\/2022\/12\/example-of-gross-profit-and-gross-margin-from-starbucks.jpg\" alt=\"Gross profit vs gross margin - an example from Starbucks\" width=\"1283\" height=\"531\" title=\"\"><\/p>\n<p><span style=\"font-weight: 400;\">So Starbucks\u2019 Gross profit in 2022 is $32,220 billion &#8211; $25,919 billion =$6,309 billion. And the brand\u2019s GPM = $6,309 billion \/ $32,220 billion = 19,58%.<\/span><\/p>\n<h2><b>Wrapping up!<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">All in all, Gross Profit vs Gross Margin are the most crucial metrics that reflect your business\u2019s financial health. However, the 2 metrics serve different purposes in analytic comparison. Therefore, you should view them side by side for a complete understanding of your brand\u2019s profitability.\u00a0<\/span><\/p>\n<p style=\"text-align: right;\"><em>Discover top-tier eCommerce applications &amp; services at <strong><a href=\"https:\/\/onecommerce.io\/\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">OneCommerce.io<\/a><\/strong><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Let&#8217;s discover the differences between Gross Profit vs Gross Margin and formulas to calculate these 2 crucial metrics properly for your business!<\/p>\n","protected":false},"author":6,"featured_media":14353,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3],"tags":[],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/posts\/14346"}],"collection":[{"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/comments?post=14346"}],"version-history":[{"count":12,"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/posts\/14346\/revisions"}],"predecessor-version":[{"id":15665,"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/posts\/14346\/revisions\/15665"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/media\/14353"}],"wp:attachment":[{"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/media?parent=14346"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/categories?post=14346"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/onecommerce.io\/blog\/wp-json\/wp\/v2\/tags?post=14346"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}