What Is Net Profit?

Net profit—often called net income or the bottom line—is the amount of money a business retains after subtracting all its costs and expenses from total revenue. In other words, it represents the actual earnings available for reinvestment, dividends, or cash reserves.

Net Profit Formula

The basic formula for net profit is:

$$Net Profit = Total Revenue – Total Expenses$$

Where Total Expenses include:

• Cost of Goods Sold (COGS)

• Operating expenses (rent, salaries, utilities, marketing, etc.)

• Interest expenses

• Taxes

• Any one-time or extraordinary costs

Use this formula to determine your true profitability.

Step-by-Step Calculation

• Gather Revenue Data
  Sum up all sales, service fees, subscription payments, and other income streams for the period.

• Compile Expense Details

  • COGS: Direct costs to produce or purchase goods sold.

  • Operating Expenses: Overhead, payroll, marketing, etc.

  • Financial Costs: Interest on loans and financing.

  • Taxes & Fees: Corporate taxes, regulatory fees, etc.

  • One-Offs: Legal settlements, asset write-downs, etc.

• Perform the Subtraction
  Subtract the total of all expenses from total revenue to arrive at net profit.

• Verify & Reconcile
  Cross-check with your income statement and bank records to ensure accuracy.

Example Calculation

Suppose your e-commerce store generated $120,000 in revenue last quarter. Your expenses were: