What Is Net Profit and How Do You Calculate It?

Net profit is one of the most important numbers in your business, yet many founders overlook it in favor of more exciting metrics like revenue or growth rate.

But revenue is just noise if your business isn't actually keeping any of it.

Net profit is the money your business has left after paying for everything, not just the cost of your product, but also your team, your tools, your taxes, and any other operating expenses. It's the number that tells you if your business is actually working.

It's also the foundation of more advanced metrics like profit margin, unit economics, and cash flow.

If you've ever felt like you're making a lot of money but still running out of it, this is the number you need to look at.

What Is Net Profit?

Net profit (also called net income, net earnings, or the bottom line) is the money left over once all business expenses are deducted from total revenue.

It includes:

• Cost of goods sold (COGS)
• Salaries and benefits
• Software, tools, and subscriptions
• Rent and utilities
• Marketing spend
• Taxes and interest
• Depreciation and amortization

Here's a simple example:

You bring in $100,000 in revenue. After all costs, expenses, and taxes, you're left with $20,000.

That $20,000 is your net profit.

Why Net Profit Matters

Net profit tells you the truth, not just whether you're making money, but whether you're actually keeping any of it.

It's a key signal for:

• Business health and sustainability
• Strategic planning (hiring, expansion, etc.)
• Pricing decisions
• Investor conversations
• Understanding how efficient your operations really are

It also plays a critical role in unit economics, especially when calculating things like LTV and CAC. If you're not already thinking about that, check out our SaaS unit economics breakdown for more on that topic.

The Net Profit Formula

Here's the standard formula:

Net Profit = Revenue - Total Expenses

Where "Total Expenses" includes everything it takes to run your business: not just COGS, but also salaries, software, rent, taxes, interest, etc.

It's a full view of your financial reality. Not just sales. Not just gross margin. But everything.

How to Calculate Net Profit (Example)

Let's go through a simple breakdown:

If you'd rather not do the math yourself, we built a Net Profit Calculator you can use. Just plug in your numbers: no signup, no fluff.

What's a Good Net Profit Margin?

Once you have your net profit, you can also calculate your net profit margin, which tells you what percentage of your revenue is actually profit.

Here's the formula:

(Net Profit / Revenue) x 100

Using our example:

(20,000 / 100,000) x 100 = 20%

A 20% profit margin means you're keeping $0.20 for every $1 of revenue.

What counts as "good" depends on your industry:

• SaaS: often 15-30%
• Services: 10-20%
• Ecommerce: 5-10% (sometimes even lower)

What matters more than a universal benchmark is whether your margin is stable and improving.

How to Increase Your Net Profit

If your net profit isn't where you want it to be, there are two basic levers you can pull: increase revenue or cut expenses. But the way you approach those matters.

1. Audit your costs regularly

Are you paying for tools you no longer use? Can you renegotiate vendor contracts or shift to annual billing for discounts?

2. Improve pricing

You don't always need more customers; sometimes you just need better pricing. Experiment with packaging, anchoring, or offering value-based tiers.

3. Focus on high-margin offerings

Not every customer or product generates equal profit. Double down on the segments or services that yield the highest returns.

4. Streamline operations

Reduce unnecessary complexity. Automate manual tasks. Optimize support or onboarding flows that drain time and resources.

5. Keep an eye on customer acquisition cost (CAC)

If you're overspending to get customers, net profit will always suffer. (Again, see our unit economics guide for more on this.)

Small changes here can add up to big gains in profit.

Common Pitfalls to Avoid

• Confusing revenue with profit: they're not even close
• Forgetting hidden costs: taxes, interest, and one-time expenses sneak up fast
• Overestimating future earnings: always base profit calculations on real, collected revenue
• Ignoring depreciation: it affects your profit even if it's not a cash expense

Keeping clean books and revisiting your numbers regularly is key.

Final Thoughts

Net profit is what really matters. Not just because it tells you what's left, but because it gives you the power to make smarter decisions.

It keeps you grounded in reality, especially when your revenue chart looks great but your bank account doesn't.

If you haven't crunched the numbers yet, give our Net Profit Calculator a try. It's quick, simple, and doesn't require a signup.

And if you're ready to go deeper into your business fundamentals, we recommend checking out our guide to unit economics and profitability next.