How to calculate profit

Profit (calculation)

Profit is revenue minus expenses. For gross profit, you subtract some expenses. For net profit, you subtract all expenses.

Gross profits and operating profits are steps on the road to net profits. Net profits are what you truly get to keep.

Gross profit

Gross profit formula shows that revenue minus the cost of goods or services sold equals gross profit.

Operating profit

Operating profit formula shows that gross profit minus operating expenses equals operating profit.

Net profit

Profit formula shows that revenue minus the cost of goods or services sold equals gross profit. And gross profit minus operat

Profits indicate you’re earning more than you spend:

  • Gross profit shows you’re selling goods and services for more than they cost you
  • Operating profit shows you’re making money after paying expenses other than interest
  • Net profit shows you’re making money after paying all expenses and taxes

See related terms

Profit margin

More terms

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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.