Gross profit, also known as gross profit, is an important financial indicator used to evaluate the business performance of a business. This index represents the level of profitability of a business after deducting direct costs related to the production and sale of products/services. Let's coming See the following article now to learn more details about gross profit!
1. What is gross profit?
Gross profit (Gross profit) is an index that represents the amount of profit a business earns after deducting direct costs related to the process of producing and selling products and services. In other words, this is the profit before taking into account other costs such as sales costs, business management costs, taxes, etc.
Gross profit is only an index to evaluate the business performance of a business
2. Distinguish gross profit from net profit and other profits
The most common types of profits are Gross profit, net profit, profit before and after tax. However, many people often confuse these types of profits. Therefore, Viindoo has created a table comparing different types of profits to help you easily differentiate.
| Gross profit | Revenues | Profit before tax | Profit after tax |
| Is the remaining profit after subtracting production costs, raw materials, etc. from net revenue. | Is the remaining portion after taking Gross profit Deduct sales and business management expenses. | It is the remaining profit after subtracting all types of operating expenses of the business from the total revenue and other income. | It is the remaining profit after deducting operating expenses and income taxes of the business |
3. Meaning of gross profit
Gross profit plays a very important role in evaluating the performance of an enterprise's business operations. This index represents the profitability of an enterprise from production and trading activities of goods and services. Below are some specific meanings of Gross profit:
- Helps businesses evaluate the effectiveness of the process of producing and trading goods and services.
- For small businesses, financial management often faces many difficulties due to the lack of professional support systems and tools. However, recording costs meticulously and carefully plays an extremely important role in ensuring business efficiency and making wise decisions.
- Businesses have it Gross profit high quality and the ability to control costs well will become attractive to investors, helping businesses attract capital to expand business activities.
- Businesses have it Gross profit higher than competitors shows a business's competitive advantage, better profitability and greater growth potential.
Gross profit plays a key role in the success and scale of a business
4. Formula to calculate gross profit
Calculation Gross profit Accurately helps businesses evaluate operational efficiency, make appropriate investment decisions and attract investors. Calculation formula Gross profit as follows:
Gross profit = Net revenue - Cost of goods sold
In there:
- Net revenue: Is total sales revenue minus deductions such as discounts, returned goods,...
- Cost of goods sold: Is the total direct costs related to the production and sale of products/services, including raw material costs, direct labor costs, wastage costs,...
For example:
Company X produces and sells furniture. In July, the company had the following figures:
- Sales revenue: 1,000,000,000 VND
- Customer discount: 50,000,000 VND
- Return of goods: 20,000,000 VND
- Raw material cost: 300,000,000 VND
- Direct labor costs: 250,000,000 VND
- Loss cost: 50,000,000 VND
Gross profit of company X in July is:
- Net revenue = 1,000,000,000 - 50,000,000 - 20,000,000 = 930,000,000 VND
- Cost of goods sold = 300,000,000 + 250,000,000 + 50,000,000 = 600,000,000 VND
- Gross profit = 930,000,000 - 600,000,000 = 330,000,000 VND
To calculate gross profit, subtract net revenue from cost of goods sold
5. How to optimize gross profit
Businesses have it Gross profit A high score often shows the ability to manage costs effectively, use capital appropriately and create good profits from production and business activities. However, not all businesses can achieve it Gross profit High. Therefore, the optimization Gross profit is an important goal that businesses need to aim for to improve efficiency and promote sustainable development. Here are some optimal ways Gross profit which you can refer to apply:
Increase sales revenue:
- Promote products/services to more potential customers through online and offline channels such as social networks, websites, advertising, PR...
- Provide attentive customer service, resolve complaints quickly, create a good shopping experience to retain old customers and attract new customers.
- Research the market to meet increasingly diverse customer needs, launch new highly competitive products/services
- Expand the market to new geographical areas, participate in fairs and exhibitions to promote products/services and find potential customers.
Reduce cost of goods sold:
- Using advanced technology, automating production, applying lean management methods to minimize waste and improve production efficiency.
- Negotiate prices with suppliers, buy in bulk to get better prices, compare prices from many different suppliers.
- Closely monitor production costs, cut unnecessary costs such as wastage costs, transportation costs,...
Effective cost management:
- Prepare detailed cost tables, classify costs by item, closely monitor and supervise to ensure reasonable use of costs.
- Applying professional financial management software helps track and manage costs more effectively, automate payment processes, and report detailed costs.
Improve management capacity:
- Improve skills and knowledge for employees in sales, production, and management to increase work efficiency and minimize errors.
- Apply advanced management systems such as ISO, ERP to control product quality, optimize production processes, and effectively manage finances.
Analyze and monitor performance:
- Monitor and evaluate rates Gross profit Periodically to evaluate the business performance of each department, product/service.
- Monitor market trends, raw material prices, and customer behavior to adjust business strategies accordingly and promptly respond to market changes.
INOptimizing gross profit is an important goal that businesses need to aim for sustainable development
In addition to the methods mentioned above, you should also use comprehensive business management software coming to optimize Gross profit and improve overall operational efficiency. Additionally, this software's Drink wine also provides a complete management solution face, integrating management functions of sales, production, warehouse, finance, human resources,... helps businesses:
- Minimize manual errors, save time and operating costs.
- Provides detailed information about business activities, helping businesses make quick and accurate decisions.
- Track costs, revenue, and profits accurately, support quick preparation of financial reports.
- Provide professional customer care services and effective sales support.
- Friendly interface, easy to use, suitable for all sizes of businesses, from small to large businesses.
Comprehensive business management software of coming helps businesses optimize gross profit, improve overall operating performance and promote sustainable development
Optimization Gross profit is an important goal that businesses need to aim for to improve efficiency and promote sustainable development. Hope that this article by Viindoo helps.