Types of profit - there are 3! | Annette & Co. (2024)

The 3 Types of Profit Every Small Business Should Know About

As a small business owner, understanding profit is essential to the success of your company. There are three main types of profit that you need to be aware of: net profit, gross profit, and operating profit. Keep reading to learn more about each type of profit and how they can impact your business.

Types of Profit - Gross Profit

Gross profit is your total revenue minus the cost of goods sold (COGS). COGS includes the direct costs associated with producing your product or service, such as materials, labour, and overhead. Gross profit is important because it shows you how much money you are making from each sale after the direct costs have been accounted for. You can increase your gross profit by either increasing your prices or decreasing your COGS.

Types of Profit - Operating Profit

Operating profit is your gross profit minus all of your operating expenses. Operating expenses include things like rent, utilities, marketing, and administrative costs. Operating profit is important because it shows you how much money you are making from each sale after all of your indirect costs have been accounted for. You can increase your operating profit by either increasing your gross profit or decreasing your operating expenses.

Types of Profit - Net Profit

Net profit is your operating profit minus tax and interest. Net profit is important because it gives you an idea of how much money your business is actually making. If your net profit is low, it means that you are not generating enough revenue to cover your expenses. You can improve your net profit by increasing your prices, finding ways to reduce your expenses, or increasing your sales volume.

Profit is a crucial part of any business, small or large. By understanding the different types of profit and how they work, you can make better decisions for your company that will lead to long-term success.

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