How to calculate profit
Learn how to calculate gross, operating and net profit for your small business.
Published Monday 17 August 2026
Table of contents
Key takeaways
- Profit is the money left after subtracting all expenses from revenue, and it's different from revenue itself.
- There are three types of profit: gross profit, operating profit and net profit, each calculated at a different stage.
- Net profit is your bottom line and what you're taxed on in Singapore, not gross profit.
- Understanding your profit margins helps you benchmark performance and make better business decisions.
What is profit?
Profit is the money your business keeps after subtracting all expenses from total revenue. The basic formula is: profit = revenue − expenses.
Profit is not the same as revenue. Revenue is the total money coming into your business from sales, while profit is what remains after you've paid for the cost of goods, operating expenses, interest and tax. A business can have strong revenue but low or no profit if expenses are too high.
The three types of profit
Profit is measured at different stages to show how your business is performing. The three main types are gross profit, operating profit and net profit.
Gross profit
Gross profit = revenue − cost of goods sold. This figure shows how much you earn from selling your products or services before accounting for operating costs. It reflects how efficiently you're producing or sourcing what you sell.
Operating profit
Operating profit = gross profit − operating expenses. Operating expenses include rent, wages, utilities and other day-to-day costs of running your business. This profit figure shows how well your core business operations perform.
Net profit
Net profit = operating profit − interest and tax. This is your bottom line, the amount left after all costs have been deducted. Net profit is the clearest measure of your business's overall financial health.
How to calculate profit step by step
Follow these steps to calculate your business's profit at each level.
- Add up your total revenue from all sales during the period.
- Subtract cost of goods sold (COGS) from revenue to get gross profit. COGS = opening stock + purchases − closing stock. Remember to include both fixed costs (like equipment depreciation) and variable costs (like raw materials) where relevant.
- Subtract operating expenses (rent, wages, utilities and other overheads) from gross profit to get operating profit.
- Subtract interest payments and tax from operating profit to get net profit.
Worked example: calculating profit
Here's how a small café in Singapore might calculate profit for a financial year.
The café earns S$200,000 in revenue. Its cost of goods sold (ingredients, packaging) totals S$80,000. This gives a gross profit of S$120,000 (S$200,000 − S$80,000).
Operating expenses, including rent, wages and utilities, come to S$60,000. Subtracting this from gross profit leaves an operating profit of S$60,000.
The café pays S$5,000 in interest on a business loan and S$9,350 in corporate income tax. After subtracting these, the net profit is S$45,650. The net profit margin is 22.8% (S$45,650 ÷ S$200,000 × 100).
Profit vs profit margin
While profit is a dollar amount, profit margin expresses profit as a percentage of revenue. This makes it easier to compare profitability across different time periods or against other businesses.
Gross profit margin = (gross profit ÷ revenue) × 100. Net profit margin = (net profit ÷ revenue) × 100.
Because margin is relative, a smaller business with lower revenue can have a stronger margin than a larger competitor with higher revenue but higher costs. Tracking margins helps you see whether your profitability is improving or declining over time.
What is a good profit margin?
What counts as a good profit margin depends on your industry, business model and growth stage. There's no single benchmark that applies to every business.
As a widely used rule of thumb, a net profit margin around 10% is considered healthy, 20% or higher is strong, and 5% or lower is on the low side. Some industries, like retail and food service, typically operate on thinner margins, while professional services often achieve higher ones.
Do you pay tax on gross or net profit in Singapore?
In Singapore, businesses are taxed on net profit, also called chargeable income, not gross profit. This means you can deduct allowable business expenses before calculating your tax liability.
The corporate income tax rate in Singapore is 17%. If you operate as a sole proprietor, your business income is taxed at personal income tax rates instead of the corporate rate.
How to improve your profit
There are several ways to increase your profit margin without necessarily increasing sales volume.
- Increase revenue by attracting more customers, raising prices or upselling to existing customers
- Reduce costs and cost of goods sold by negotiating with suppliers or finding more efficient sourcing
- Improve efficiency and automation to reduce labour hours and manual errors
- Retain customers, since repeat business costs less than acquiring new customers
- Review your product mix and focus on higher-margin items
Track your profit with Xero
Xero's reporting tools track your income, expenses and profit in real time, so you always know where your business stands. With automated bank feeds and clear dashboards, you can monitor gross, operating and net profit without spending hours on spreadsheets. Ready to see your numbers more clearly? Get one month free and start tracking your profit today.
FAQs on calculating profit
Here are answers to common questions about calculating profit.
What is the difference between gross, operating and net profit?
Gross profit is revenue minus cost of goods sold. Operating profit subtracts operating expenses from gross profit. Net profit subtracts interest and tax from operating profit, giving you the final bottom line.
What is a good profit margin?
A net profit margin around 10% is generally considered healthy, while 20% or above is strong. Margins vary by industry, so compare your results against similar businesses.
Do I pay tax on gross or net profit in Singapore?
You pay tax on net profit (chargeable income), not gross profit. This means allowable expenses are deducted before your tax is calculated.
What is the difference between profit and revenue?
Revenue is the total money earned from sales. Profit is what remains after deducting all expenses from that revenue.
Can gross profit be higher than net profit?
Yes, gross profit is always higher than or equal to net profit. Net profit accounts for additional expenses like operating costs, interest and tax that aren't included in the gross profit calculation.
Related 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.