Gross profit is the financial gain of a company after deduction of the costs necessary to manufacture and distribute its goods or services. These costs are referred to collectively as the cost of goods sold. The revenue of a company after it accounts for what had to be paid out to return that revenue is called the company’s gross profit, meaning it is the amount of money actually earned.
How to calculate gross profit:
Gross Profit = Total Revenue – Total Cost of Goods Sold
The general gross profit definition considers only variable costs for its deductions. These are any costs that increase or decrease the level of production output. Fixed costs, such as insurance and rent, are not directly tied to output and are not factored into gross profit.