Net Profit

Net Profit

What Is Net Profit?

Net profit is the amount of money a business has after all expenses are paid.

Calculating your business' net profit is extremely important for your business growth and success. The net profit you have after deducting all expenses. It can also be referred to as the net income, net earnings, and the bottom line. It's important to calculate your business' net profit because an increase in revenue doesn't always reflect in profit. Net profit shows you what you have after all expenses are paid.

If you want to grow your business at a sustainable pace, always calculate your net profit as this can help you save for future purposes, pay your debt, invest in a new project, and do other business-related work to keep growing your business. How to calculate Net Profit It is very easy to calculate net profit. Going by the definition; amount left after all expenses. So, to calculate this, just add up all your expenses and deduct them from the total revenue. In simple format we have

Net profit = Total revenue – Total expenses

The Expenses Involves In Net Profit

The expenses in net profit include fixed and variable expenses. Fixed expenses are the expenses that remain the same irrespective of the business activity while variable expenses change in relation to production and sales.

The Right Time To Use Net Profit

Each financial quarter, companies publish their income statement to the public. Shareholders check this income statement to know their stand by viewing the net profit. This is because they are compensated with net profit. So, it is important to calculate your net profit so your shareholders can see it.

However, if a company doesn't make enough profit to compensate shareholders, the company's share value will fall. On the other hand, if a company is growing, there will be higher stock prices.

Companies always devise a means to increase their net profit and they do this by either cutting costs or increasing revenue. When a company notices a negative net profit, it can easily figure out a way to solve it.

When You Have To Avoid Using Net Profit

Net profit differs between industries; however, it should not be the criteria for comparing companies.

Avoid measuring the total amount earned during a particular time with net profit because it accounts for non-cash expenses like depreciation.

Note: Use the cash flow statement to check how much cash a company generates.

Net Profit: Why It Is Important

Net profit allows you to know the amount of money you are generating and how profitable your business is as well.

With net profit, you will know when you are generating revenue without making enough profit. With this knowledge, you will be able to scrutinize to find out what the problem is and fix it. And also structure your business for future growth.

After checking your business profitability with this method, you can decide to reinvest the leftover properly so as to take your business to another level.

Tips On How To Improve Net Profit

Get rid of unprofitable products and services

Scrutinize your product data to know the most profitable and unprofitable product. After that, you can decide what to do with the unprofitable product; either to remove it entirely or make a discount on those products.

Review pricing

This part is challenging for most businesses, but it should be noted that even a slight price increase can make a great positive impact on your net profit. However, to make the right decision, consider the market price and supply before making increasing the price. The major thing here is to be smart with pricing.v

Take care of inventory

Control your inventory to increase cash flow and also increase net profit. Apparently, some of your products have a higher level of profit than others. By controlling your inventory, you'll be able to buy the right quantity of products at the right time to make sure you have high-profit products for the right customers. This way; you'll avoid your money being tied to a product that doesn't sell or those with low-profit margins.

Reduce Overhead

Always review your overhead cost like rent, marketing expenses, insurance, etc as that’s an easy method of improving net profit.

Minimize all direct cost

The best way of doing this is by negotiating very well with your suppliers you can as well remove needless products.

Scroll down to read our indepth Ecommerce Platforms guide. What you should know, Ecommerce Platforms features, price plans and support. Pros and Cons of Ecommerce Platforms as a ecommerce, everything is explained below.

Overview of Net Profit

Shopify is a software company that specialises in ecommerce software for small to enterprise level businesses.

Shopify is listed as the best ecommerce software related to Ecommerce Platforms. Shopify was founded in 2006 in Ottawa, Canada and currently has over 6,124 employees registered on Linkedin.

Best ECOMMERCE Solution By Rating