Profit isn’t just one number — and getting it wrong can cost you

Ask most founders how much profit they’re making, and you’ll hear something like:

“We did £500k last year and made about £150k in profit.”

But then you look under the hood, and it’s not quite that simple. Because what they really mean is… something between revenue and a gut feeling.

This confusion is common — especially when founders are scaling quickly without a full finance team. And one of the biggest culprits is mixing up gross profit and net profit.

They sound similar. But they tell very different stories. And if you’re making decisions — or talking to investors — based on the wrong one, it can lead you down the wrong path entirely.

Let’s fix that.

Gross profit vs net profit: the quick definition

Gross profit is what you make after delivering your product or service.
It shows how efficiently you produce or fulfil what you sell.

Net profit is what you make after everything else — team, tools, marketing, rent, insurance, the lot.
It shows whether your business, as a whole, is actually profitable.

Here’s the breakdown:

Gross Profit = Revenue – Cost of Goods Sold (COGS)
Net Profit = Revenue – All Expenses (COGS + Operating Expenses + Taxes + Interest)

So, if you’re doing £100k/month in revenue and spending £30k on product fulfilment (support, hosting, shipping, materials, etc.), your gross profit is £70k.

But if you’re also spending £50k/month on salaries, tools, and overheads, your net profit is only £20k.

Big difference — and it matters.

Why this matters when you’re scaling

In the early days, profit is often less of a focus. You’re looking at cash flow, growth, funding. But as you scale, understanding where your actual profitability comes from is critical.

Here’s why:

• Gross profit shows your core business model works. If it’s healthy, you can afford to scale.
• Net profit shows your company works. If it’s not healthy, you’ve got cost structure issues — even if sales are strong.

You can be growing revenue every month, but if your gross margin is too low, you’re essentially building a leaky bucket. And if your net profit is negative and your burn rate is high, you’re on borrowed time.

The most common founder mix-ups

1. Thinking “profit” means “what’s left in the bank”

Cash in the bank ≠ profit. You might have cash because you got paid upfront, or raised funds, or are delaying bills. That’s cash flow — not profitability.

2. Calling net profit “margin”

Gross margin is gross profit as a % of revenue.
Net margin is net profit as a % of revenue.
Very different — and investors will be watching both.

If you say your margin is 60%, they’ll assume you mean gross, unless you clarify.

3. Ignoring gross profit because “we’re pre-profit”

Even if you’re not aiming for net profit yet, you should be tracking gross profit. It’s your signal that your model is viable — and it influences your valuation.

What’s a good gross margin?

That depends on your business model:

• SaaS: 70–90% gross margins are typical and expected
• Product-based businesses: 30–50% is more realistic
• Marketplaces or agencies: somewhere in between, depending on structure

The important thing is knowing your number — and being able to explain it.

What founders should track (and talk about)

Even if you’re not profitable yet, you can still build trust by being clear on:

• Gross profit per product or customer segment
• Gross margin trends over time
• Net burn vs net profit (or how close you are)
• Your plan to improve both over time

This shows maturity — and shows you understand what scaling really means.

Clarity > optimism

Founders don’t mix up gross and net profit on purpose — it’s usually because no one’s explained it clearly. But once you do know, it becomes a superpower.

You can:

• Price more confidently
• Make hiring and spend decisions based on reality
• Raise investment with solid financials behind you

And you stop relying on vibes or assumptions — because you’ve got the numbers to back you up.