How to Calculate Gross Profit, Important for Businesses of All Scales

For an entrepreneur like you, knowing what is profit and how to calculate it is very essential. Why is that? Because the amount of profit you get from a business will be calculated correctly and accurately.

This can also help you in analyzing the development of the business you are running. Despite the fact that profit is divided into two, namely net profit and gross profit, this time Trikinet will invite you to explore about gross profit.

What is gross profit?

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Gross profit can be interpreted as all income from sales before deducting costs associated with making and selling its products, such as employee salaries, interest payments, overhead, and taxes.

That is, in gross income there are profits and costs of production as well as costs of providing services, so it still cannot be called pure profit from sales.

How to calculate gross profit?

The formula for calculating gross profit is very easy and simple. You just need to subtract your total revenue with COGS (Cost of Goods Sold). The meaning of income here is the result of sales. While HPP is the cost of production.

Gross profit = Revenue – COGS

Example:

A bakery production MSME has detailed information on the Income Statement as follows:

Net sales : IDR 10.000.000

HPP : IDR 4.000.000

Marketing fee : IDR 400.000

Administration fee: IDR 100.000

Tax : IDR 500.000

Based on the detailed information and data above, the calculation of gross profit is as follows:

Gross profit = Revenue - COGS

                  = IDR 10.000.000 – IDR 4.000.000

                  = Rp6.000.000

So, any types of costs listed in the data (eg marketing costs, taxes, and administrative costs) will have no effect on how gross profit is calculated.

 What factors affect gross profit?

1. Product selling price. The higher the price of the product to be sold, the greater the profit the company will receive.
2. Number of products. The more the number of products or services that are sold, the chances of getting a profit are also higher.
3. HPP (Cost of Goods Sold). If the cost of goods sold is fixed and balanced with the selling price of the product, of course the profit generated will also be even greater.

What are the benefits of knowing gross profit?

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• Help determine the company's financial stability.
• Help understand the development of the company.
• As material for evaluating business models and strategies
• Help with long term planning

By knowing what gross profit is and how to calculate it, you will get the various benefits above. The business that you run will also grow and move to get bigger profits later.