What is Net Profit and How Do You Calculate It?
The goal of successful online stores is to create a consistent net income month after month. This indicates your business is expanding at a sustainable pace and growth can be expected in the future. Growing businesses can use net income to save for future expenses, pay off debt, invest in new projects or distribute to investors.
The Calculation for Net Profit Is:
Example of Net Profit:
An ecommerce company has $350,000 in revenue minus $50,000 in cost of goods sold. That leaves them with a gross profit of $300,000. If $75,000 is allocated for salaries, $25,000 to operating expenses and $5,000 to taxes, those numbers are subtracted from the gross profit, leaving a net income of $195,000.
Don’t forget your net profit is not a measure of how much cash a company has earned during a given period. That’s because the income statement includes non-cash expenses such as depreciation and amortization.
How to Improve Net Profit
Remove Unprofitable Products and Services
Reduce Overall Direct Costs
While net profit is an important metric to track in order to understand the state of your business, it’s doesn’t tell the whole story of how your ecommerce store is doing. Gross margin, cash flow and average order value and site traffic are other indicators of business success.
By closely and regularly monitoring ecommerce metrics, store owners can identify business performance and progress toward sales and revenue goals. Performance metrics can also drive better informed business decisions and identify areas of improvement.
Improve Net Profit with Glew
Calculating net profit can be cumbersome for ecommerce stores. It requires switching between Google Analytics, social dashboards and the ecommerce platform. With Glew’s ecommerce platform, discovering net profit is easy and intuitive. Glew allows users to calculate net profit by individual channels.
Glew’s Net Profit by Channel chart starts with channel level Revenue, then provides Cost of Goods Sold, Gross Profit, Gross Margin, Advertising Spend, Net Profit and Profit Margin. Glew’s ecommerce analytic dashboards tie together previously siloed data and allow you to access your data in a central location.
To see the benefits of Glew firsthand, we invite you to get started with a free trial.