| Gross Profit | Gross Margin | |
|---|---|---|
| What it is | Revenue minus cost of goods sold, in dollars | Gross profit divided by revenue, as a percentage |
| Unit | Currency (£, $, €...) | Percentage (0–100%) |
| Best for | Tracking absolute dollars earned per period | Comparing profitability across products or time periods |
| Changes with volume? | Yes — more sales = more gross profit | No — the ratio stays the same if price and cost stay the same |
| Investor language | Common in revenue/cost breakdowns | The standard metric for comparing companies across sizes |
If you sell something for $100 and it costs $60 to make, your gross profit is $40 and your gross margin is 40%. They are both correct descriptions of the same transaction. The confusion comes because the word 'margin' is sometimes used loosely to mean gross profit dollars rather than the percentage.
When the distinction matters
Gross profit in dollars tells you how much money the business is producing to cover operating expenses and profit. Gross margin as a percentage tells you how efficiently the business converts revenue into that money -- and unlike the dollar amount, it does not change just because sales volume goes up or down.
That is why investors and financial analysts nearly always talk in margin percentages: a company with $10M gross profit on $100M revenue (10% margin) and a company with $1M gross profit on $4M revenue (25% margin) are very different businesses, even though the first one produces more gross profit dollars.