How to Work Out Gross Profit With Math

Gross profit is defined as the money left over from revenue after all expenses directly related to generating a product or service are subtracted. This is different from net profit, which is the money left over after all expenses are subtracted. Gross profit is a useful number in business performance measurement and forecasting, and vital to setting prices on a product or service. Calculating gross profit is an exercise is basic arithmetic.

Things You'll Need

• Financial records, or estimates for planning a future business
• Calculator or spreadsheet program

Instructions

1. Determine income. Multiply the actual sale price of each item by the number of items sold. In this case "item" can mean an actual product or a unit of service.

2. Determine per unit production costs, in terms of raw materials and labor used to produce one unit. Multiply by the number of units produced, not the number of units actually sold.

3. Determine lump-sum production costs, such as facility rent, utilities and marketing costs. In some cases, it's useful to divide this total by the number of units sold. This generates a per-unit gross profit in addition to your total gross product.

4. Determine the sum of steps one and two. Subtract from step three to determine gross profit for the product.

Tips & Warnings

• Expenses not included in factoring gross profit are company expenses not directly related to producing and selling that product. This can include taxes, insurance, expenses related to a different product and other expenses of that type.

References

• "Small Business for Dummies"; Eric Tyson, 2007
• Bartt Brick, Small Business Consultant, Hillsboro, OR