How to calculate profit

Profit (calculation)

Profit is revenue minus expenses. For gross profit, you subtract some expenses. For operating profit, you subtract most 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 operating expenses and minus taxes equals net profit.

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.

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Profit margin

   

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