Revenue minus cost of goods sold — the product's own profitability.
Gross profit is revenue minus cost of goods sold — what's left after paying for the thing you sold, before any overhead. Expressed as a percentage of revenue, it's the gross margin.
It isolates a specific question: is the product or service itself profitable enough? A healthy gross margin gives overhead something to live on; a thin one means no amount of expense-trimming below the line will save the model. Falling gross margin over time usually signals rising input costs or under-priced work — catch it on the monthly P&L, not at year-end.
Revenue $20,000, COGS $8,000: gross profit $12,000, a 60% margin. If next quarter shows 52% on similar revenue, materials got pricier or discounts got deeper — either way, worth investigating now.
Cost of Goods Sold (COGS) · Net Profit · Profit & Loss Statement (Income Statement) — or browse the full plain-English glossary.
Reading a definition is the easy part — the Daily Challenge (ten questions a day, free, no signup) is how terms like this become reflexes. Going for certification? Start with the free ProAdvisor readiness check.