There are two kinds of profits.  The first is a gross profit which is the total of a sale (or all sales combined) minus the cost of the goods.  The second profit is the net profit.  The net profit is the gross profit minus the costs of operating the business.  For example, the business must pay rent for the store, electricity, heat, water and sewer, telephone, advertising, supplies (hangers, tags, etc.), insurance, a security system and salaries (operating costs).  These costs are also known as overhead costs.  You must subtract the operating cost to get the net profit. Not all goods will... Show more

There are two kinds of profits.  The first is a gross profit which is the total of a sale (or all sales combined) minus the cost of the goods. 

The second profit is the net profit.  The net profit is the gross profit minus the costs of operating the business.  For example, the business must pay rent for the store, electricity, heat, water and sewer, telephone, advertising, supplies (hangers, tags, etc.), insurance, a security system and salaries (operating costs).  These costs are also known as overhead costs.  You must subtract the operating cost to get the net profit.

Not all goods will be sold for a profit.  If customers will not buy a product at a certain cost, the store owner is forced to lower the price.  If the reduction of the sale’s price is set too low, the sale’s price will result in the store owner taking a loss (known as a net loss).  A net loss is the difference between the gross profit and the operating expenses when the operating expenses are greater than the gross profit. 

Understanding profit and loss can help you in many areas in your life beyond just understanding how stores operate.  It can especially help you in being able to run a household, sell or buy a house, sell or buy a car, and any other financial decisions you will need to take in life.  

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