Strategy Session

What Is Gross Profit?

critical driver financial performance gross profit variable cost Jul 14, 2022

So one of the questions that comes up often in many of our client meetings is what is my gross profit?

And why is it important?

So gross profit is the difference between our sales and our cost of delivery. So our sales less our variable costs. That equals gross profit. It's just a straight formula.

And why is it important?

Well, we need to understand that when we're delivering new revenue or we're increasing the volume of our business, that our gross profit continues to increase. What we have to make sure of is that our gross profit is greater than our fixed expenses. Otherwise, we're losing money. So gross profit is an extremely important critical driver in your business that will drive strong financial performance.

So giving an example here. If we're to sell an item for $1,000 and the cost of that item for us to buy is $300. Our gross profit is $700 on that item. It gives us an idea of how much money we're making off each sale. And it again, is a key driver to strong financial performance in the business.

It's important because we want to continue to figure out how we can drive more and more gross profit per item of sale in our business so that we can continue to grow and have greater impact and increase that financial performance and our bottom line.

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