What’s the Difference Between Gross Profit and Net Profit?


A business is required to lodge an income statement for tax purposes to the Australian Taxation Office (ATO). One of the key elements is the profit a business has made over a period of time. Two key numbers in those statements are the gross and net profits. The Australian Government Department of Industry, Innovation & Science business aspect outlines the difference between gross and net profit.

Gross Profit

As outlined in this earlier article, How Does a Profit and Loss Statement Work? gross profit otherwise referred to as gross income is essentially net sales minus cost of goods sold (COGS).

  • Gross Profit = Revenue – COGS

Revenue refers to the total amount the business brings in from sales. COGS refer only to the expenses that the business incurs when making the products. Keep in mind, this is not the bottom line for your business.


Total Revenue200,000
Cost of Goods Sold(50,000)
Gross Profit150,000

As shown in this example, the business brought in $200,000 from sales and spent $50,000 on making their product. Therefore, gross profit comes out to $150,000 for that time period.

Net Profit

As outlined in the earlier article, How Does a Profit and Loss Statement Work? net profit otherwise referred to as net income is essentially gross profit minus all other operating expenses for the business.

  • Net Profit = Gross Profit – Expenses

Using the calculation earlier you can determine gross profit. Expenses refer to those outside the COGS which can include operating, interest and tax costs. This is usually referred to as the bottom line of your profit and loss or income statement. If this number is negative, it is known as a net loss.


Gross Profit150,000
Total Operating Expenses(40,000)
Net Profit80,000

Following on from the earlier example, the gross profit for that period was $150,000. Total operating expenses which usually include payroll, utilities, rent, etc was a $40,000 deduction. With interest and tax both being $15,000. Therefore, using the formula earlier the net profit comes out to $80,000 for the same time period.


It is important for businesses to know the difference between gross and net profit as they indicate different elements of the operations. From an operations point of view, the business owner will be looking to reduce operating costs to increase the net profit. In addition, looking to reduce COGS to cap out the gross profit. Hiring a business lawyer to run through this information with you can be a vital step to assist in improving performance. This information is then useful for investors and lenders who intend to understand your financial health. Traditionally, they look at net profit as an indicator of how much injection is going to take place.

Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

Find the perfect lawyer to help your business today!

Get a fixed-fee quote from Australia's largest lawyer marketplace.

Most Popular Articles
You may also like
Recent Articles

Get the latest news

By clicking on 'Sign up to our newsletter' you are agreeing to the Lawpath Terms & Conditions


Register for our free live webinar today!

Price of Justice: Paying the Right Price for Legal Expertise

12:00pm AEDT
Tuesday 30th April 2024

By clicking on 'Register for webinar' you are agreeing to the Lawpath Terms & Conditions

You may also like

Impartiality and objectivity are key traits of the law. The arm's length principle helps preserve this. Read more about this principle here.
A partnership agreement acts as the foundation for business partnerships. Breaches can cause serious harm to a business, but there are legal remedies available. Read this article to find out more about what solutions can be reached.
Want to learn more about the off-field legal matters that affect Australian sports? Find out more about sports law in this article.

Thank you!

Your registration is confirmed. Keep an eye on your inbox for an email with details on how to watch the webinar.