What is GROSS PROFIT?
Gross profit is like the money you make from selling something before you pay for all the other things that help you sell it. It's like if you sell lemonade, it's the money you get from selling the lemonade minus the cost of the lemons and sugar.
What is NET PROFIT?
Net profit is the money you actually get to keep after you pay for everything. So, after you sell your lemonade and buy more lemons and sugar, you also have to pay for things like the table you sell it on. Net profit is what's left after all of that!
Key Differences
- What's Included: Gross profit only looks at the cost of the things you sell (like lemons and sugar). Net profit looks at everything (lemons, sugar, the table, and even your little brother's allowance for helping!).
- The Big Picture: Gross profit tells you if you're making enough money just from selling your stuff. Net profit tells you if your whole business is making money after all the costs.
- How to Find It: To find gross profit, you subtract the cost of what you sell from your sales. To find net profit, you subtract all your expenses from your gross profit.
When to Use Each One
Imagine you're selling cookies. You use gross profit to see if you're making enough money to pay for the ingredients (flour, sugar, chocolate chips). If your gross profit is low, you might need to raise your prices or find cheaper ingredients.
Then, you use net profit to see if you're actually making money after paying for the ingredients, the oven you use, and the baggies you put the cookies in! If your net profit is low, you might need to find ways to save money on all your expenses.
The Bottom Line
Gross profit and net profit are like two pieces of a puzzle. Gross profit helps you understand if your prices are good. Net profit shows you if your business is really making money after all the costs. Use them both to make sure your business is healthy and making you money!