What Is Gross Profit vs. Net Profit? (And Why You Need to Know the Difference)
You’re working hard, landing jobs, and money’s coming in — but are you actually making a profit?
It’s one of the most important questions any business owner can ask. And to answer it clearly, you need to understand the difference between gross profit and net profit.
If you’re a solo cleaner, handyman, pressure washer, or any other service-based small business owner, this guide will help you break it down and use it to grow your business with confidence.
What Is Gross Profit?
Gross profit is what’s left after you subtract the direct costs of doing the work — but before your other business expenses.
Formula:
Gross Profit = Revenue – Cost of Goods Sold (COGS)
🧼 Example (for a cleaner):
You charged a client $500
You spent $50 on cleaning supplies
→ Gross Profit = $450
It tells you how profitable your services are before paying for things like software, insurance, or marketing.
What Is Net Profit?
Net profit is what’s left after all your business expenses — including tools, fuel, subscriptions, insurance, and anything else it takes to run your business.
Formula:
Net Profit = Gross Profit – Operating Expenses
Using the same example:
Gross Profit: $450
Operating Expenses (insurance, software, etc.): $200
→ Net Profit = $250
This is your bottom line. It tells you how much your business actually made after everything is paid.
Why It Matters
✅ Gross Profit helps you:
Set your prices
Evaluate which services are most profitable
Understand your direct job costs
✅ Net Profit helps you:
See if your business is financially healthy
Decide whether to cut expenses
Know how much you can take home or reinvest
Common Mistake: Confusing the Two
Many small business owners look at gross profit and assume that’s what they’re making — but forget to factor in overhead costs like software, fuel, or marketing.
Just because a job brought in $1,000 doesn’t mean you “made” $1,000.
Pro Tip: Track Both Monthly
You don’t need to be an accountant to do this — just:
Use bookkeeping software like QuickBooks Online
Review your Profit & Loss statement monthly
Look at both your Gross Profit and Net Profit
Ask: “Is this sustainable?” and “Where can I improve?”
Example Breakdown
Revenue $10,000
COGS (materials, subcontractors) $3,000
Gross Profit $7,000
Operating Expenses (fuel, software, etc.) $4,000
Net Profit $3,000
You can use this format to plug in your own numbers each month.
✅ Final Thoughts
Your gross profit tells you if your services are priced right.
Your net profit tells you if your business is working.
Knowing the difference — and tracking both — helps you make smarter decisions and build something that actually pays you back.
Not sure where your profits stand?
Let’s run a quick Bookkeeping Health Check and see how your business is really doing — no pressure, just clarity.
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And as always, thanks for reading and we’ll see you next week!