PROFIT GUIDE

What is the difference between gross profit and net profit?

Short answer: gross profit measures what remains after the costs directly associated with producing or delivering the work are subtracted from revenue. Net profit goes further and subtracts the business's remaining operating expenses and other applicable expenses.

Gross profit answers a job-delivery question

For a service business, direct costs can include job materials, direct labor and subcontractors, depending on how your accounting is organized. Gross profit shows how much is left to support overhead and profit after those costs.

Gross profit = revenue − cost of goods sold or direct cost of work

Net profit answers a whole-business question

Rent, general insurance, office software, administrative payroll, marketing and other operating costs still have to be paid. Net profit reflects what remains after the broader expenses included in your financial statements.

Net profit = revenue − total applicable business expenses

A profitable job does not guarantee a profitable business

A job can sell for more than its direct cost and still contribute too little toward overhead. If that happens across a full schedule, the business can look busy while cash stays tight.

Do not confuse markup with profit margin

Markup is applied to cost; margin is measured against selling price. Neither number automatically equals net profit because overhead and other business expenses still exist.

Use both levels when reviewing performance

Review job-level contribution to learn which types of work perform well, then review the whole business to see whether total contribution covers overhead, owner compensation goals and a sustainable profit.

Keep accounting definitions consistent

Businesses can classify some costs differently. What matters for decision-making is using a consistent method and understanding what your reports include. Your accountant or bookkeeper can help align management calculations with your financial statements.

See whether your pricing supports the whole business

JJL's free Profit Checkup helps you think beyond a single job and estimate what your productive time needs to contribute.

Run the free checkup