Profit is generally the money your business has left over after you take away expenses, but there are two similar, but fairly different types of profit:
For example, you're a cleaner and one of your bi-weekly cleaning jobs brings in $120 and the COGS for the job is $40, the gross profit calculation would look like this:
Just looking at your revenue for a job doesn't show the complete picture, which is why it's important to know the gross profit for it as well.
The other type of profit is known as net profit. To get your net profit, you take your total revenue for a given period of time and then subtract your total operating expenses. This should include your COGS but also the costs of running your business, which includes things like work truck payments, equipment, employee payroll, etc.
An example of net profit might look like this: Your cleaning business brings in $4,000 for the month of April, and the total business expenses for the month are $1100. The calculation to get the net profit for the month would be:
Why have two different profit calculations? Gross profit is good at showing you how much money you're making on each job you do. However just because your gross profits are good it doesn't mean your business is healthy overall. You could have high gross profits, but if your net profit is low, or even negative, that can mean bad news for the future of your business, which why it's also important to keep an eye on your net profit.
Your business's profit is a great way to see how much money your business is actually bringing in, but margins can be an even better way to measure how well...Continue reading...
Revenue is the total income your business has earned as a result of doing work or selling a product to a customer before any expenses, charges, or other costs are...Continue reading...