Gross Profit vs Net Profit

When completing an insurance application for a policy or reviewing the values at the time of a policy’s renewal, gross profit margin is a figure that is required to determine how much business interruption coverage your business will need should your business need to use this coverage in the future.

There can be confusion between gross profit margin and net profit margin.  To simplify, gross profit is the total revenue your company generates before paying any expenses while net profit is what is left over after expenses have been paid.

How is Gross Profit Determined?

Gross profit margin is determined by your gross annual sales minus the cost of goods sold.  But why does this matter to your insurance policy?

If your business suffers an insured loss and is closed for an extended period of time (a fire for example), one of the most important coverages your policy has is business interruption coverage.  This coverage would pay out the gross profits you would have earned if your pharmacy were still operating normally.  This would cover expenses such as rent, payroll, and utilities that you would still be required to pay while your store is closed and not generating any revenue.

When dealing with your insurance policy, always make sure to calculate your gross profit margin, as this information is crucial to your business in the event of a claim.

Want to learn more?  Contact our office to discuss your policy one on one with one of our brokers.