Profit basics

Gross profit is what remains after the direct cost of delivering the sale. Net profit is what remains after everything. Gross margin percentage is the number that tells you whether growth is safe. Below roughly 30% in a service business, every new customer adds work and stress faster than it adds money. Calculate both monthly. Estimate them before you quote a large job. A common mistake is confusing revenue with profit, celebrating a big sale without checking what it cost to deliver. Owners quote a job, get paid, and assume the money in the account is profit, when a large share is already owed to materials, labor, or subcontractors. Before celebrating a sale, subtract the direct cost of delivering it and look at what remains before deciding it was a good deal. To decide whether a job or product line is worth keeping, calculate its gross margin percentage on its own, separate from the rest of the business. A line that looks busy and popular can still be quietly losing money if its direct costs are high relative to price. Compare each line's margin against your overall target, and be willing to raise prices or drop a line that consistently falls short. You can judge whether your profit numbers are healthy by comparing them month to month rather than staring at one number in isolation. A single month can be skewed by one large job or one slow week. Look for a trend over three or four months. If margin is sliding steadily downward even while revenue grows, costs are creeping up faster than prices, and that gap will not fix itself without a deliberate change. A catering business believed it was thriving because bookings kept increasing, but its net profit stayed flat for a year. Calculating gross margin per event revealed that larger events, which felt like wins, actually carried thinner margins because of rushed extra staffing. Once the owner adjusted pricing for large events specifically, overall profit rose even though total bookings stayed the same.

Key takeaways

• Gross margin percentage is the number that tells you whether growth is safe.
• Calculate both monthly.
• (50,000 − 32,500) / 50,000 = 35%.

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