Guide
How to calculate net profit
Revenue is the number everyone quotes, but net profit is the one that pays you. It's what's left after every cost comes out. Here's the formula, a worked example, and how net profit differs from gross profit and plain revenue.
1. Start with total revenue
Add up all the money your business took in over the period: product sales, shipping charged to customers, and any other income. This is the top line, before any costs come out.
2. Subtract cost of goods sold
Take out what it cost to make or buy the things you sold: materials, manufacturing, or wholesale cost. Revenue minus COGS gives you gross profit, the money left to cover everything else.
3. Subtract all operating costs
Now take out the rest: ad spend, platform and payment fees, shipping, software, rent, and any wages. These are the costs of running the business, not just making the product.
4. Account for taxes and interest
Subtract any interest on debt and the taxes owed on your earnings. What's left after all of this is your net profit, the true bottom line.
5. Turn it into a margin
Divide net profit by revenue and multiply by 100 for your net profit margin. The margin lets you compare months and products fairly, even when sales volume changes.
A worked example
Say a store brings in $20,000 in revenue for the month. Cost of goods is $7,000, leaving $13,000 in gross profit. Then come operating costs: $3,000 in ad spend, $1,200 in platform and payment fees, $900 in shipping, and $600 in software, which is $5,700. Subtract $400 in taxes. Net profit is $13,000 minus $5,700 minus $400, or $6,900, a net profit margin of about 34.5 percent.
Let the math run itself
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Start freeFAQ
What is the net profit formula?
Net profit = total revenue minus all expenses. In full, that's revenue minus cost of goods sold, minus operating expenses (ad spend, fees, shipping, software, rent, wages), minus interest, minus taxes. Whatever remains is net profit.
What's the difference between gross profit and net profit?
Gross profit is revenue minus only the cost of goods sold. Net profit goes further and subtracts every other cost too: operating expenses, interest, and taxes. Gross profit tells you if your product is priced well; net profit tells you if the whole business made money.
Can net profit be negative?
Yes. If your total costs are higher than your revenue, net profit is negative, which is a net loss. It's common and worth catching early, because a few high-sales months can still lose money once ad spend, fees, and COGS are counted.
What is a good net profit margin?
It varies widely by industry, so there's no single right number. The more useful habit is tracking your own margin over time and watching the trend, rather than comparing to a benchmark that may not fit your business.