Gross profit is what is left after you pay for the work you sold. Net profit is what is left after the business pays for everything else. Every job in a trades or home-services business can clear its own costs and the company can still finish the month with almost nothing, because overhead is paid by the business, not by the job.
What is gross profit?
Gross profit is revenue minus the cost of services — labor, materials, subs, anything that rises when you sell more work. Overhead stays out of it. A cleaning company that bills $20,000 in a month and spends $12,000 on labor and supplies has $8,000 of gross profit, a 40% gross margin. Gross profit measures the work.
What is net profit?
Net profit is what is left after operating overhead comes out too — rent, insurance, office wages, vehicles, software — the costs that arrive whether you sell ten jobs or none. A cleaning company with $8,000 of gross profit and $5,000 of overhead keeps $3,000 before tax. Net profit measures the company.
What's the difference?
The difference is overhead. Gross profit stops after the costs of the work; net profit keeps going until the company's own costs are paid too. Revenue vs profit covers money in against money kept, and this guide covers the two stops in between. Two fictional cleaning companies below both earn $8,000 of gross profit and finish $3,500 apart.
| Line | Company A (fictional) | Company B (fictional) |
|---|---|---|
| Revenue | $20,000 | $20,000 |
| Cost of services | $12,000 | $12,000 |
| Gross profit | $8,000 | $8,000 |
| Gross margin | 40% | 40% |
| Office and bookkeeping wages | $1,600 (part-time) | $3,400 (full-time) |
| Owner salary | $1,500 | $1,500 |
| Vehicles (payments, fleet insurance) | $900 (two vans) | $1,600 (four vans) |
| Rent and storage | $300 (storage unit) | $900 (leased shop) |
| Business insurance | $450 | $700 |
| Software, phones, advertising | $250 | $400 |
| Total overhead | $5,000 | $8,500 |
| Profit before tax | $3,000 | −$500 |
| Revenue needed to break even | $12,500 | $21,250 |
Company B is not worse at the work. Its crews turn the same 40 cents of every dollar into gross profit. It carries $3,500 more overhead: a leased shop, four vans, a full-time office.
Overhead ÷ gross margin is the revenue you have to bill before anything is yours: $12,500 for A, $21,250 for B. B billed $20,000 and finished $500 down.
Owner pay, vehicles, and insurance can sit on either line, and the choice changes your gross margin without changing a dollar in the bank. The convention used here: a cost belongs in cost of services only if it rises and falls with the work you sell. Everything else is overhead.
That is one convention, not the only one. Accountants sort these costs differently and so does trades software. Plenty of small shops put all owner pay in overhead, which is simpler and just as defensible.
Pick one, write it at the top of the sheet, and keep it. Move owner pay between the lines and gross margin shifts several points while net profit does not change a cent. Switch mid-year and every comparison afterwards is noise.
Why is my net profit low when gross profit is fine?
Gross profit and net profit point at two different problems. A thin or falling gross margin sends you to prices against actual job cost, hours worked against hours quoted, material waste, and callbacks. A healthy gross margin with thin net profit sends you to overhead and to finished work still unbilled.
If both are thin, fix gross margin first, and do not cut costs at random. Cancelling a $40 subscription returns $40. Three jobs a month running $600 over what you priced them at is $1,800.
- Take a closed month
Pull revenue and costs from the system you already run. Same source every month.
- Sort every cost into two buckets
Cost of services is anything that moved because you sold that work. Overhead is the rest.
- Do the arithmetic
Revenue − cost of services = gross profit.Gross profit − overhead = profit before tax. - Find your break-even revenue
Overhead ÷ gross margin, against what you actually billed. Repeat with the same categories.
A summary from a connected agent is not a profit and loss statement. Final gross and net profit come from complete accounting records.
There are three practical ways to do this: use a spreadsheet, ask your accountant or bookkeeper, or connect your accounting and job tools so Barry AI can calculate gross and net profit, explain the difference, and show what changed from last month.
Barry, calculate last month's gross and net profit from my connected records. Show which expenses explain the difference, compare with the month before, and label any missing costs or taxes.
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