Glossary: Gross Income/Gross Profit

calculator and signatureTechnically the terms gross income and gross profit are not the same, but they are often used interchangeably.

Gross Income

Gross income, sometimes called gross revenue, refers to money coming in the door before ANY expenses are accounted for.

Gross Profit

Gross profit refers to what’s left of a business’s gross income after cost of goods sold is subtracted.

If a business does not have cost of goods sold (as in most service-based businesses) then the business’s gross income and gross profit will be the same.

Example 1

Joe the Window Washer washes windows. This is a service business. He does not sell products, so he has no cost of goods sold. Joe brings in $100,000 from washing windows this year. His gross income and gross profit are both $100,000.

Example 2

Joe the Window Washer decides to start bottling and selling his “secret sauce” window-cleaning solution. He brings in $100,000 from washing windows, and $50,000 from sales of solution. It costs him $25,000 to bottle the formula, package it, ship it, etc.

In this example, Joe’s gross income is $150,000 ($100,000 from window washing plus $50,000 from sales of his solution). His cost of goods sold is $25,000 … leaving him with a gross profit of $125,000.

What About Net Income?

Net income refers to what’s left after all other expenses (after cost of goods sold) have been accounted for. So in example 2: Joe’s gross income is $150,000, his gross profit is $125,000, and then all other expenses are subtracted out of the $125,000 to arrive at Joe’s net income.