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Operating Profit vs Gross Profit: 4 Key Differences Explained

By Leah TranJuly 26, 20255 min read
operating profit vs net profit

Profit metrics are essential for evaluating the financial health of an eCommerce business. Two commonly used metrics, operating profit vs gross profit, are often confused but serve different goals.

Gross profit represents the profit remaining after subtracting the cost of goods sold (COGS) from total sales. 

Operating profit is the profit remaining after deducting operating expenses from gross profit, but before interest and taxes. 

Comparing Gross Profit vs Operating Profit

While both measure your ability to generate profit, they capture different profitability levels. Understanding their differences helps you make better decisions on pricing, expenses, and scalability.

Quick Recap:

  • Gross profit measures the profit after deducting the cost of goods sold (COGS) from total sales. It indicates the profitability of your products and pricing strategy.
  • Operating profit reflects the profit remaining after covering all operating expenses. It shows whether the business can sustain profitably as it scales.
  • Both are important, but operating profit is a clearer indicator of a business’s profitability.

Operating Profit vs Gross Profit: Key Differences Explained

1. Defintion

Gross profit is the profit a business earns after subtracting the cost of goods sold (COGS) from total revenue. It includes only direct costs related to producing or purchasing the goods sold, such as raw materials and direct labor. 

Gross profit does not include operating expenses like rent, utilities, salaries of administrative staff, marketing expenses, interest, or taxes.

Operating profit is the profit a business earns after subtracting operating expenses from gross profit. It includes costs such as rent, utilities, salaries for administrative staff, and marketing expenses. 

Operating profit does not include non-operating items like interest expenses and taxes. It reflects the profit generated from the business’s core operations before accounting for interest and taxes.

2. Formula

Gross profit is calculated as:

Gross Profit Formula

Meanwhile, calculate operating profit using: 

Operating Profit Formula

Let’s say your revenue is $50,000, and your COGS is $20,000.

You would calculate: 

Gross Profit = $50,000 - $20,000 = $30,000

Now, if your operating expenses are $10,000, you can find your operating profit:

Operating Profit = $30,000 - $10,000 = $20,000

3. Use Case

Think of gross profit as your pricing reality check. It shows whether your products are priced to leave enough margin after covering the cost of goods sold (COGS) and shipping. If it’s too low, it may be time to adjust your prices, talk to your suppliers, or look at your shipping costs

Use operating profit when planning for growth. It shows whether your store can stay profitable as it scales, after covering all operating expenses. A strong gross profit but a weak operating profit can happen if you sell well but spend too much to keep the business running.

Which Metric Matters More for Store Profitability?

Both are important performance metrics, but operating profit is a clearer indicator of a business’s profitability. 

Gross profit measures profitability after accounting for direct production or purchase costs, while operating profit measures profitability after accounting for both direct production costs and the ongoing expenses required to operate the business. 

This distinction makes operating profit a more comprehensive metric in your business profitability analysis. 

Stay On Top Of Your Margin Tracking

Understanding the difference between gross profit and operating profit is key to truly knowing how your business performs—from product profitability to operational efficiency. 

While gross profit highlights how much you make from sales, operating profit shows how well you run your store. 

To track both metrics accurately and effortlessly, use TrueProfit—the profit analytics tool built for Shopify sellers. Don’t leave your bottom line to guesswork—let TrueProfit give you full visibility into your business health.

Operating Profit vs Gross Profit FAQs

What is the difference between GM and OM?

GM (Gross Margin) tells you how much you keep after paying for products. OM (Operating Margin) shows what’s left after covering your business costs too.

How do you calculate operating profit from gross profit?

Take your gross profit and subtract your operating expenses, like ads, apps, and payroll, to get your operating profit.

What is the difference between GMS and OPS?

GMS (Gross Merchandise Sales) is your total sales before fees and returns. OPS (Operating Profit) is what you actually keep after paying your business expenses.

Is operating profit the same as COGS?

Nope. COGS is what you pay to get products ready to sell. Operating profit is what’s left after paying all your business bills.

What is operating profit vs gross profit?

Gross profit shows what’s left after product costs. Operating profit shows what’s left after all business costs.

How to calculate OM%?

Divide your operating profit by your total revenue and multiply by 100 to get your operating margin percentage.

Is operating profit EBIT or EBITDA?

Operating profit is the same as EBIT, which means earnings before interest and taxes.

What is operating profit?

It’s the money your store keeps after paying for everything it takes to run your business, before interest and taxes.

What does a gross profit margin of 75% indicate?

It means you keep 75% of your sales after covering product costs, which is a strong margin.

What is GMS and non-GMS?

GMS is your total sales from products. Non-GMS is other income you earn that isn’t from selling products.

What is the difference between GMS and PMS?

GMS is your total sales value. PMS usually refers to product management systems and isn’t related to sales.

What is the difference between average and OPS?

“Average” is a general calculation. OPS means operating profit, which shows how much profit your business keeps after expenses.

Leah Tran is a Content Specialist at TrueProfit, where she crafts SEO-driven and data-backed content to help eCommerce merchants understand their true profitability. With a strong background in content writing, research, and editorial content, she focuses on making complex financial and business concepts clear, engaging, and actionable for Shopify merchants.

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