What is gross profit?

Sales means what customers paid, excluding any sales tax you collected for the tax authority. Cost of goods sold means the purchase cost of only the items that were actually sold in the period, not everything you bought.

A small grocery sells 200 cases of bottled drinks in a month at $14 a case: sales of $2,800. Each case cost $9.50 from the distributor, so cost of goods sold is 200 x 9.50 = $1,900. Gross profit = 2,800 - 1,900 = $900. That $900 has to pay for rent, wages, power and everything else. What remains after those is net profit.

Gross profit can be shown as a percentage of sales, which is gross margin: 900 / 2,800 = 32 percent.

• Calling takings profit. Sales are not profit until the cost of the stock is taken off.
• Using the wrong cost. If the supplier raised the price, use the cost of the stock you actually bought, not last year's figure.
• Leaving out freight or duty. Delivery paid to bring goods in belongs in the cost of those goods.
• Ignoring tax. Sales tax collected is not your revenue, so leave it out of sales.

The gross profit guide walks through the full method.

Shopkeepa's reports show gross profit where a cost has been entered for the product. Products without a cost are left out of the profit figure instead of guessed. Cashiers cannot see cost or profit. Shopkeepa is pre-launch; join early access to hear when it opens.