What is Gross Profit?
Gross profit is normally defined as follows:
Gross Profit = Sales – Costs
In reality, gross profit estimates are based on a more complex interaction of prices, discounts, costs, and ultimately, gross profit at several levels. Using an item's price and a proposed discount, NetSuite calculates the transaction's revenue. Then, using the estimated cost of the item, NetSuite calculates the estimated gross profit earned from the revenue.
NetSuite supports both line-level and transaction-level gross profit estimates. These estimates supply decision-making information to sales teams and executives throughout the sales process, from the opportunity stage early in the sales cycle on through to the issuance of an invoice.
The Gross Profit feature uses cost data already tracked by NetSuite to calculate estimated gross profit on transactions. For example, the average cost information comes from item records. This feature is not directly dependent on other features, but may have limited utility if features such as Inventory, Sales Orders, Opportunities, and Estimates are not enabled.
The cost of any item on a transaction is often not known until an order is fulfilled. For this reason, anyone using the information provided by a gross profit estimate must focus on the fact that the calculated gross profit is based on estimated, not actual costs.
To fully understand the Gross Profit features, it is important to get a clear picture of how it is used within an organization. See Who Uses Gross Profit and Why?