What is Gross Profit?
Gross profit is the profit a business earns from its core sales activities, calculated as revenue minus cost of goods sold, and shown as the first profitability subtotal on the income statement.
How It Works
- Formula: gross profit = revenue – cost of goods sold.
- Gross margin = gross profit / revenue × 100.
- Excludes operating expenses, finance costs, and taxes.
- Key indicator of pricing power and cost efficiency.
Saudi Context
Saudi sector gross margin benchmarks vary widely: software 70% to 90%, retail 25% to 40%, food and beverage 20% to 35%, contracting 10% to 20%, petrochemicals 15% to 30%. Saudi businesses use gross margin as the first profitability lens when reviewing pricing, supplier costs, and inventory shrinkage.
Example
A Saudi retailer reports revenue of SAR 10,000,000 and COGS of SAR 7,000,000. Gross profit = 10,000,000 – 7,000,000 = SAR 3,000,000. Gross margin = 3,000,000 / 10,000,000 × 100 = 30%.