Net Profit
The total profit after all expenses, taxes, and costs are deducted from revenue.
Definition
Net profit (also called net income or the "bottom line") is what remains after subtracting all expenses from revenue—cost of goods sold, operating expenses, interest, and taxes. It represents the actual profit available to owners or for reinvestment in the business.
Net Profit = Revenue - All Expenses. It's the final number on an income statement and the truest measure of business profitability. While gross profit shows product/service viability, net profit shows whether the entire business model works.
Why It Matters
Net profit is the ultimate measure of business success. Positive net profit means the business is sustainable; persistent losses indicate a fundamental problem. Net profit also determines how much can be paid as owner distributions, retained for growth, or used to repay debt.
Net profit margin (net profit ÷ revenue) varies by industry. Understanding your industry's typical margins helps benchmark your performance and identify improvement opportunities.
Examples
- 1
A business has $1M revenue, $600K COGS, and $300K operating expenses. Net profit is $100K (10% net margin) before taxes.
- 2
A freelancer earns $150,000 gross revenue but nets only $60,000 after subtracting taxes, software, health insurance, and home office costs.
- 3
Two businesses each have $500K revenue, but one nets $50K while the other nets $125K due to better cost management.
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