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Table of Contents
Net Profit: Definition, Formula, and Examples
When it comes to measuring business performance, few numbers are as important as net profit. This single figure tells you how much money your company has left after covering all of your expenses — making it a direct indicator of financial health and sustainability.
In this guide, we’ll explain what net profit is, how to calculate it, what net profit margin means, and how these metrics can help you make smarter business decisions. Plus, we’ll walk through examples so you can see the calculations in action.
What is Net Profit?
Net profit is the amount of money your business keeps after subtracting all expenses from total revenue. It’s sometimes referred to as “net income” or “net earnings,” and it accounts for every cost of running your business — including operating expenses, taxes, interest, and depreciation.
In other words:
- Revenue is the total money coming in.
- Expenses are all the costs of doing business
- Net profit is what’s left over when expenses are subtracted from revenue.
If the number is positive, your business is profitable. If it’s negative, you’ve recorded a net loss.
Why Net Profit Matters
Tracking net profit is essential because it:
- Measures true profitability, not just sales volume.
- Helps identify areas where costs can be reduced.
- Influences investor confidence and lending decisions.
- Guides pricing strategies and growth planning.
- Forms the basis for calculating net profit margin — a key performance metric.
The Net Profit Formula
The basic net profit formula is:
Net Profit = Total Revenue – Total Expenses
Where:
- Total Revenue includes all income from sales and services.
- Total Expenses include cost of goods sold (COGS), operating expenses, interest, taxes, and depreciation.
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Net Profit Margin vs. Net Profit
While net profit is the dollar amount you keep, net profit margin is a percentage that shows how much of your revenue turns into profit.
Net Profit Margin Formula:
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This tells you how efficiently your business turns sales into actual earnings.
How to Calculate Net Profit in 4 Steps
Here’s a quick process you can follow to calculate your net profit and net profit margin:
- Determine Total Revenue: Add up all income from sales, services, and other revenue streams.
- Add Up Total Expenses: Include direct costs (like raw materials), operating expenses, payroll, taxes, interest, and depreciation.
- Subtract Expenses from Revenue: Use the formula: Net Profit = Revenue – Expenses
- Calculate Net Profit Margin: Use the formula: (Net Profit ÷ Revenue) × 100
Net Profit and Net Profit Margin Examples
Let’s say your business generated $500,000 in total revenue and had $350,000 in total expenses. Determining your net profit and net profit margin would look a bit like this:
Step 1: Calculate Net Profit
Net Profit =$500,000 (total revenue) – $350,000 (total expenses)
Net Profit = $150,000
Step 2: Calculate Net Profit Margin
Net Profit Margin = ($150,000 ÷ $500,000) × 100
Net Profit Margin = 30%
This means for every dollar earned, your company keeps $0.30 in profit.
Improving Net Profit and Net Profit Margin
If you want to boost your profitability, focus on both increasing revenue and controlling expenses.
Ways to Improve Net Profit:
- Increase sales with marketing and/or product expansion.
- Review and renegotiate supplier contracts to ensure you’re getting the best prices.
- Eliminate unnecessary expenses.
- Improve operational efficiency with automation tools, like Flex.
- Monitor and adjust pricing strategies on a regular basis.
How Flex Can Help Track and Improve Net Profit
The Flex Business Credit Card and spend management platform can help businesses track expenses in real time, making net profit calculations more accurate. With features like:
- Real-time transaction tracking
- Customizable card controls for employees
- Up to 60-day float to ease cash flow
- Integrated bill pay to centralize vendor payments
Flex gives you the visibility and control you need to manage expenses — directly impacting your bottom line.
Final Thoughts
Understanding net profit and how to calculate it is essential for any business owner. By tracking both net profit and net profit margin, you’ll gain insights into your company’s financial health, spot cost-saving opportunities, and make smarter growth decisions.
A clear view of your profitability isn’t just about numbers — it’s about having the data you need to plan confidently for the future.
Flexbase Technologies, Inc. (Flex) is a financial technology company and is not a bank. The Flex Business Credit Card is issued by Lead Bank, pursuant to a license from Visa U.S.A. Inc. and is only available to eligible commercial entities. Fees and terms and conditions apply. Applicants are subject to eligibility requirements.
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