Gross Profit !! - What is it, Why it Matters, and How to Calculate it -( No AI included , just how to do it )

So you've heard the term "Gross Profit" thrown around, and you've probably nodded , agreeing that you are also an expert on the subject, whilst secretly googling what it means. Well... its one of the most important concepts in all business, and its actually quite simple to understand.

The base of it, is the difference between what you sell an item for, and what it actually cost you, to either buy yourself, make or produce.

Think of it this way- If you buy an apple for 35p and sell it for 60p, then your gross profit is 25p.

Easy Peasy .👍

This applies to everything from apples and oranges, to cars and guitars. Gross profit is the fundamental building block of any business.

Why should I care, there's an app on my phone that does it all for me .

Well, in an age where we have automation everywhere, it is tempting to let a piece of software do all the heavy lifting for you, BUT - big golden rule of any business -

if you don't understand something, you cant' manage it

Understanding your gross profit is the first step to understanding the health of your business.

So I hear you ask, if it's so simple why does it appear so complicated in reality ??

The complexity usually comes from not fully understanding your true costs, or trying to shortcut the process to save time.

In a business like catering, this is where things can get a bit messy. To work out the true cost of a dish , you have to break it down .

So, lets take something a bit more realistic, lets look at a Beef Chilli

The Recipe - (makes 12 portions)

1kg lean minced beef £11.30

300g chopped onion £0.38

Tsp garlic puree £0.12

2 Tablespoon chilli powder £0.25

2 tsp cumin £0.15

4 tablespoons plain flour £0.30

Half litre beef stock £0.33

800g chopped toms £1.85

800g kidney beans £1.69

300g tom puree £1.98

2 x bayleaf £0.10

Oregano £0.05

Total £18.50- cost per portion is £1.54

Served with

Long Grain Rice £0.78- cost per portion

Therefore your dish cost is £2.32.

Then,are you serving it in a crockery bowl or on a paper plate or takeaway bowl ? – if we assume it is takeaway, and the bowl is 35p and wooden knives and forks are another 8p each. Then we add that as well.

So now we have Food cost £2.32

Disposable £0.51

The Final Tally

Food cost ** £2.32

Disposable Packaging £0.51

Total cost of sales £2.83

If you sell this dish of £10.00, then your gross profit is £7.17 - (£10.00 - £2.83) -

In the business world, gross profit is usually expressed as a percentage. This makes it easier to compare the profitability of different products and track performance over time.

Gross Profit Percentage

( Gross profit / Selling price) x 100 = Gross profit Percentage.

In our chilli example.

£7.17 / £10.00 x 100 = 71.7%

And there you have it. Now you are armed with the knowledge to understand and calculate the most critical metrics in your business

That wasn't so hard was it ??👌