Net profit is the amount of revenue a business earns after deducting all expenses, including taxes and interest. It reflects a company's overall profitability and is a key measure of financial success.
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Net profit is the amount of money a company earns after deducting all expenses, taxes, and other costs from its total revenue. It represents the final profit generated from the business’s core operation. It’s also often referred to as net income, bottom line, and net earnings, but the terms could have some slight differences based on their income statement positioning.
To calculate net profit, you need to subtract the total expenses from the total revenue.
The formula is simple:
Net Profit = Total Revenue – Total Expenses
The total expenses include all costs incurred by the business, such as the cost of goods sold, operating expenses, interest expenses, depreciation expenses, taxes, and any other relevant expenses.
For example, let’s say a company saw these numbers in a specific time period:
Using the formula above, we find that the company’s net profit amounts to $155,000.
It’s important to note that the specific breakdown of expenses may vary depending on the nature of the business and the accounting practices it follows.
Factors such as market conditions, company size, industry, operational efficiency, and competitive landscape all impact the net profit margin of a business, which means there’s no one-size-fits-all benchmark.
That said, we found that a good general net profit margin percentage is around 10%, according to data from Xero Benchmarks for All Companies.
But depending on the industry, even this number can vary drastically.
For example, net profit margins in the retail sector can range from 2% to 10%, depending on the type of retail business. Discount retailers typically have lower net profit margins, while specialty retailers or luxury brands may have higher margins.In the healthcare sector, margins vary on the specific segment, such as pharmaceuticals, hospitals, or medical devices, but they typically range from 5% to 15%. The highest net profit margins are usually seen in the technology and software sector, where established businesses can achieve 30% or higher margins.
Net profit represents a company’s bottom line, and increasing it should be a number one priority in most modern organizations. Depending on your size, business model, and industry, you’ll need to experiment with different approaches and strategies until you find the one that works best for your organization.
That said, we pinpointed a few expert strategies that might help you out:
More resources to help you improve:
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Databox is a business analytics software that allows you to track and visualize your most important metrics from any data source in one centralized platform.
To track Net Profit using Databox, follow these steps:
Xero’s dashboard template provides you with insights about cash flow, bank accounts, sales and expenses entered in Xero to stay on top of your business.
Net profit is the amount of money a company has after subtracting all expenses from total revenue, including taxes, interest, and operating costs. It’s the actual profit the company has earned.
Gross profit, on the other hand, is the profit remaining after subtracting only the cost of goods sold from the revenue.
Net profit tells you how much actual profit a business generates, after accounting for all expenses and taxes. It’s an indicator of how efficient the company is at managing its costs and generating revenue, and it serves as a key measure of profitability.
Net Income (Cash) is the total profit earned by a business after deducting all expenses that have been paid in cash.
Total Income is the sum of all revenue earned by a business during a defined period of time, including sales, services, and other sources of income.
Gross Profit is a financial metric that shows the profit earned by a business after deducting the cost of goods sold from its revenue. It represents the amount of money left after accounting for the direct expenses associated with producing and selling a particular product or service.
Total Assets represents the total value of an organization's resources, including cash, accounts receivable, inventory, property, and equipment.
The Current Liabilities by Liability metric measures the proportion of a company's short-term debts compared to their long-term debts, providing insight into the company's ability to meet its obligations in the near future.
Short-term cash forecast predicts a company's cash inflows and outflows over a short period, usually a month or a quarter, to ensure they have enough liquidity.
The Quotes Declined metric measures the number or percentage of quotes that were rejected or turned down by potential customers.
The Quotes Invoiced Value metric measures the total amount of invoiced revenue generated from quotes created in Xero.