Freelancing 
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Employment 
E-commerce Net Profit
profitabilityThe total profit remaining after all expenses have been deducted from revenue, including COGS, operating expenses, interest, taxes, and any other costs. Also called the bottom line.
Definition
Net profit is the definitive measure of whether a business is making money. It sits at the bottom of the income statement, after every conceivable expense has been subtracted from revenue. A positive net profit means the company earned more than it spent; a negative figure means it operated at a loss. It is the money available for reinvestment, dividends, debt repayment, or reserves.
Many businesses focus on revenue growth while neglecting net profit. Revenue is vanity; profit is sanity. A company generating $10 million in revenue but only $50,000 in net profit (0.5% net margin) is far more fragile than one generating $2 million in revenue with $400,000 in net profit (20% net margin). The latter has room to invest, weather downturns, and compound over time.
Improving net profit requires either growing revenue faster than expenses or cutting expenses without proportionally reducing revenue. The most powerful lever is usually gross margin improvement, because gains there flow directly to the bottom line and scale with every sale. Expense reduction has a ceiling, but revenue growth combined with healthy margins has virtually no limit.
Formula
Net Profit = Total Revenue - Total Expenses Example
A freelance agency generates $800,000 in annual revenue. Total expenses are $640,000 (contractor payments: $400,000, tools: $30,000, marketing: $60,000, rent: $48,000, insurance: $12,000, taxes: $90,000). Net profit = $800,000 - $640,000 = $160,000.
Related Terms
Gross Profit
profitabilityThe absolute dollar amount remaining after subtracting the cost of goods sold (COGS) from total revenue. It is the money available to cover operating expenses and generate net profit.
Net Margin
profitabilityThe percentage of revenue that remains as profit after all expenses, including operating costs, interest, taxes, and depreciation, have been deducted.
EBITDA
profitabilityEarnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance that removes the effects of financing, accounting, and tax decisions.
Operating Margin
profitabilityThe percentage of revenue remaining after deducting all operating expenses, but before interest and taxes. It measures the profitability of core business operations.
Put It Into Practice
Use these calculators to apply net profit to your own numbers.
Profit Margin Calculator
Calculate gross, operating, and net profit margins.
Open calculator →Gross vs Net Margin Calculator
Compare gross margin, operating margin, and net margin side by side to see where your profits go.
Open calculator →Cash Flow Forecast Calculator
Forecast your monthly cash flow, runway, and projected cash balance.
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