Definition
Gross profit is revenue minus COGS. Many unit economics models should use gross profit (not revenue) as the value created.
Formula
Gross profit = revenue - COGS
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Gross Profit" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Document common pitfalls so the metric doesn't get gamed.
Where to use this on MetricKit
Calculators
- SAFE Conversion Calculator: Estimate how a SAFE converts in a priced round using a valuation cap and/or discount (simplified).
- Convertible Note Conversion Calculator: Estimate how a convertible note converts in a priced round with interest plus a valuation cap and/or discount (simplified).
- Liquidation Preference Calculator (1x): Estimate investor proceeds at exit under a simple 1x non-participating liquidation preference vs converting to common (simplified).
- Multiple Valuation Calculator: Estimate enterprise value and equity value from a metric (ARR or revenue) and a valuation multiple (with net debt adjustments).
- DCF Sensitivity Calculator: Estimate how enterprise value changes with discount rate and terminal growth assumptions (simple 3x3 sensitivity).
Guides
- Pre-money vs post-money valuation: formulas, ownership, and pitfalls: Learn pre-money vs post-money valuation, how investor ownership is estimated, and why the option pool shuffle changes effective dilution.
- Pro rata rights: what they mean and how to estimate your check size: A practical guide to pro rata rights: maintaining ownership, estimating dilution if you don't participate, and common allocation pitfalls.
- Option pool shuffle: how it impacts founder dilution (with example): Understand the option pool shuffle, why it's negotiated, and how a post-money option pool target changes dilution for existing holders.
- SAFE: what it is, valuation cap vs discount, and conversion basics: A practical guide to SAFEs: how valuation caps and discounts work, what converts in a priced round, and common modeling pitfalls.
- Convertible note: interest, cap/discount, and conversion basics: A practical guide to convertible notes: how interest accrues, how caps and discounts affect conversion price, and common modeling pitfalls.