Profit is the financial gain your business earns after covering all costs, and it’s an essential metric for growth, sustainability, and credibility. While many businesses aren’t profitable at first, turning a profit should be one of your top business goals, especially if you’re looking to secure loans or attract investors. There are three main types of profits listed on your income statement — gross profit, operating profit, and net profit — each offering a deeper look into different aspects of your company’s performance.
Calculated as revenue minus the cost of goods sold (COGS), gross profit gives you a snapshot of your company’s profitability without considering ongoing operating expenses like wages, rent, and utilities. It also helps you assess your production efficiency and pricing strategies. Operating profit, also known as EBIT, deducts your core operating expenses from gross profit to gauge your company’s overall profitability and includes items such as wages, rent, utilities, and other overhead costs. Net profit, aka your “bottom line,” is calculated as total revenue minus total expenses and adds back in any reimbursable costs such as tax payments.
While boosting revenue is key to increasing your profit, cutting operational costs can have an equally positive impact. Some ways to achieve this include reducing or eliminating excess inventory, renegotiating supplier contracts, and investing in energy-efficient infrastructure. By carefully balancing revenue and expense management, you can drive sustainable profit growth over time.