The Difference Between Gross Profit and Net Profit

While both gross profit and net profit measure a company's profitability, they look at it from different angles.

Gross Profit

Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. It only accounts for variable costs (COGS).

Net Profit

Net profit, often referred to as the "bottom line," is the amount of money a company has left over after all expenses, including operating expenses, interest, and taxes, have been paid.

Which is More Important?

Both are crucial. Gross profit tells you if your core business model is viable. If your gross profit is negative, your business model is fundamentally flawed. Net profit tells you if your overall business operations are sustainable.