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When it comes to your business, there’s a lot to keep track of, and understanding your gross margin and net profit margin is a good starting point. In this episode, we unpack the differences between gross margin and net profit margin, and the different views both can offer into your profits.

  • Episode Transcript

    Episode two, those gross nets.

    Welcome back to From Dollar One by Interac. This tip is about gross nets. No, we’re not talking about that time we took a tour on the fishing boat. We’re talking about the difference between gross margin and net profit margin.

    Knowing just how much you can earn and how that stacks up with the cost of running your business is essential to maintaining a healthy business. And understanding your gross margin and net profit margin is a good way to do that.

    On the surface, they may seem pretty similar, but they offer two different views of profit your business makes.

    So what’s the difference?

    Gross margin is the money left over from sales after subtracting the expenses directly tied to making and delivering your product. This allows you to see how much revenue you’re making on your product after subtracting the cost of making it.

    Net profit margin, meanwhile, is the grand total of all the money you’ve earned after subtracting costs related to the business. Stuff like making and delivering the product, paying rent, taxes, and bills. Once everything is squared away, what remains is all profit.

    So where gross margin shows how much revenue is earned, net profit margin is the profit earned after all of the business expenses are paid off, AKA how much is actually in the bank when all is said and done.

    Thanks for listening. And if you wanna learn more, sign up for our newsletter at Interac.ca/FromDollarOne.

    Tune in for our next tip where we talk about an important document for controlling your cash flow, the invoice.

This article offers general information only and is not intended as financial, legal or other professional advice. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subject matter discussed. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Interac Corp.