Profit is the difference between revenue and expenses, and it’s the metric that shows whether or not a company has a healthy bottom line. Profit serves as the cornerstone of business success, driving growth and sustainability in competitive markets. Effectively managing profit — including calculating gross, operating, and net profit — is crucial for companies looking to thrive and grow.
To calculate profit, start with total revenue (the top-line) and subtract all costs. Revenue is what your business receives from selling its products or services, and it includes everything from sales revenue to interest income on savings. Costs are all of the money your business spends, from raw materials and labor to rent, utilities, and employee salaries. To find profit, you must also take into account taxes and other non-revenue-generating expenses (like marketing costs).
The difference between revenue and expenses is what makes up a company’s profit. For example, if your SaaS company generates $100,000 in revenue and incurs $80,000 in operating expenses, its profit would be $11,000. To further refine the number, you can include intangible assets like customer churn and subscription renewals.
Understanding how to read and analyze profit numbers is important for every business owner, no matter the industry or size. With this knowledge, you can make informed financial decisions that support the health of your organization. You can also optimize and improve your operations by identifying the best margins for different products, improving production efficiency, or focusing on new market opportunities.