What is net profit?
Learn what net profit is, how to calculate it and how it differs from gross profit, with an Indonesian example.
Published Wednesday 30 September 2026
Table of contents
Net profit is what the business gets to keep, which makes it one of the most important numbers people look at
Key takeaways
- Net profit is what your business keeps after you subtract every expense, including interest and tax, from total revenue
- Gross profit only removes the cost of goods sold, while your bottom line also accounts for running costs, interest and tax
- Net profit margin turns your bottom line into a percentage of revenue, which makes periods easy to compare
- Checking your figures every month helps you spot trends early and plan for the income tax you owe
What is net profit?
Net profit is the money your business keeps after you subtract every expense from total revenue. It’s also called net income, net earnings or the bottom line.
The expenses you subtract are cost of goods sold (COGS), operating expenses, interest and taxes. A positive result means you’ve made a profit, and a negative result means a loss.
Think of it as what’s left in the till once you’ve paid suppliers, staff, the landlord, the bank and the tax office.
Net profit formula
The simplest version of the formula takes total expenses away from total revenue:
Net profit = total revenue – total expenses
To see where your money goes, break total expenses into their parts:
Net profit = total revenue – COGS – operating expenses – interest – taxes
Each part of the expanded formula covers a different kind of cost.
- Total revenue is all the money you earn from selling goods and services. It’s your starting point, before any costs come out.
- COGS is the direct cost of making or buying what you sell. For a shop, that’s stock; for a cafe, it’s ingredients.
- Operating expenses are the costs of running the business day to day. They include rent, wages, utilities, marketing and depreciation.
- Interest is what you pay on business loans, credit cards and overdrafts. It’s a financing cost, so it sits outside operating expenses.
- Taxes are the income tax you owe to Indonesia’s Directorate General of Taxes (Direktorat Jenderal Pajak, DJP). Companies pay corporate income tax (PPh Badan) at a flat 22% on net taxable income.
How to calculate net profit
You can work it out in five steps using your sales records and bills. Pick a period first, such as a month or a quarter.
- Add up your total revenue. Include every sale of goods and services for the period. When you’re checking what counts as revenue, leave out loans and owner contributions, because they aren’t earnings.
- Calculate your COGS. Add the direct costs of the products you sold, such as raw materials and stock. Service businesses often call this cost of sales and include direct labour instead.
- Add up your operating expenses. Total your running costs, including rent, wages, utilities, insurance, marketing and depreciation. Check that none of these costs already sits in COGS.
- Include interest and tax. Add the interest on business loans or credit, plus the income tax you owe for the period. Government Regulation No. 20 of 2026 (PP 20/2026) took effect on 22 April 2026. It limits the 0.5% final tax on turnover (for turnover up to Rp4.8 billion a year) to individuals, single-founder companies (PT Perorangan) and cooperatives. Other companies, such as limited liability companies (PT) and limited partnerships (CV), calculate tax on their net profit.
- Subtract all expenses from revenue. Take COGS, operating expenses, interest and tax away from total revenue. A positive result is a profit, and a negative result is a loss.
You can also skip the manual maths. With Xero accounting software, the profit and loss report calculates it automatically from the transactions you’ve recorded.
Net profit example
Say you run a small cafe in Bandung and want to know what you kept last quarter. Here are your figures for the three months:
- Rp300,000,000 in total revenue
- Rp100,000,000 in COGS for ingredients, coffee beans and packaging
- Rp137,500,000 in operating expenses for rent, wages, utilities, insurance and marketing
- Rp5,000,000 in loan interest
- Rp12,500,000 in tax
Net profit = Rp300,000,000 – Rp100,000,000 – Rp137,500,000 – Rp5,000,000 – Rp12,500,000 = Rp45,000,000
Your cafe kept Rp45,000,000 after covering every cost for the quarter. That’s the money you can reinvest or set aside for quieter months.
Net profit vs gross profit
Gross profit is revenue minus COGS, so it shows how profitable your products are before running costs. Net profit goes further by also taking out operating expenses, interest and tax.
Using the Bandung cafe figures, here’s how the two compare:
- Gross profit is Rp200,000,000 (Rp300,000,000 – Rp100,000,000)
- Net profit is Rp45,000,000 after operating expenses, interest and tax
- Gross profit tells you whether your prices cover your direct costs
- Net profit tells you whether the business as a whole is making money
Both figures appear on the same report, and this profit and loss statement example shows where each one sits.
What is net profit margin?
Net profit margin shows your net profit as a percentage of total revenue. It tells you how much of each sale you keep.
Net profit margin = (net profit / total revenue) x 100
For the Bandung cafe, that’s (Rp45,000,000 / Rp300,000,000) x 100 = 15%. In other words, you keep Rp150 of every Rp1,000 earned.
Because it’s a percentage, margin lets you compare quarters, or compare your cafe with larger businesses in your industry. Run your own numbers with the net profit margin calculator. You can also compare other types of profit margin, such as gross and operating margin.
Common net profit mistakes
A few slip-ups can make your result look healthier or weaker than it really is. Watch for these when you run the numbers:
- Confusing gross profit with net profit, which overstates what the business keeps
- Treating net profit as a pre-tax figure, which hides the tax you still owe
- Leaving out interest or depreciation, which inflates your result
- Mixing personal and business expenses, which distorts your real costs
To judge how your core operations perform without financing costs, look at net operating profit after tax, which removes the effect of interest.
Why net profit matters for your business
Your bottom line shows whether the business can keep going and grow on its own earnings. It shapes everyday decisions about hiring and pricing.
Here’s how it helps you run the business:
- Shows whether the business is sustainable over the long term
- Gives lenders and investors a clear view of profitability when they value your business
- Reveals trends when you compare one month or quarter with the last
- Sets a realistic base for next year’s budget
Debt also adds interest costs that reduce net profit, so weigh each new loan against the extra profit it could bring. It also feeds into profitability ratios such as return on equity.
For a wider view, learn how to measure profitability across your business. A profit and loss template gives you a simple structure for tracking results each month.
How to improve your net profit
Small changes to pricing and costs can lift your profit quickly. These strategies suit most small businesses in Indonesia, and there are more ways to increase profits in the full guide.
- Review your pricing regularly so it keeps pace with rising costs
- Cut expenses that don’t contribute to sales or customer experience
- Improve your gross margin by negotiating with suppliers or reducing waste
- Automate repetitive tasks such as data entry and invoice reminders
- Collect payments promptly by invoicing as soon as the work is done
- Monitor your numbers monthly with a profit and loss statement
Track your net profit with Xero
Knowing your profit each month helps you price with confidence and plan for tax. Xero keeps your numbers current, with automated bank feeds that bring in transactions so reconciling them is quicker.
Customisable profit and loss reports show your bottom line whenever you need it. See how Xero fits your business and get one month free.
FAQs on net profit
Here are quick answers to common questions about net profit.
What is a good net profit margin?
As a rule of thumb, 5% is low, 10% is healthy and 20% is high. The right target depends on your industry.
Is net profit the same as net income?
Yes, the two terms describe the same figure. Just don’t confuse net income with gross income, which is your total earnings before any deductions.
How often should you calculate net profit?
Monthly suits most small businesses, because it lets you catch rising costs before they build up. Review it again at the end of each financial year when you prepare your tax return.
Is net profit the same as taxable income?
Not always. Some costs, such as certain interest, aren’t deductible for tax, so your accounting profit and taxable income can differ.
Related terms
Learn more about net profit
Handy resources
Advisor directory
You can search for experts in our advisor directory
Margin calculator
Calculate your gross profit margin with this simple calculator to check you’re hitting your targets.
Financial reporting
Keep track of your performance with accounting reports
Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.