What is net profit, and how do you calculate it?

In short: Net profit is what you actually keep after taking the cost of goods and every shop expense out of sales for a given period.

The full guide: How to open a shop in Jordan

Work it out now: Break-even

Net profit is the number that matters most to a shop owner. Formula: net profit = gross profit - operating expenses, or sales - cost of goods sold - expenses. Expenses include rent, salaries, electricity and water, internet, card fees and maintenance. It is usually worked out per month, because most expenses are monthly and a single day tells you very little.

In a Jordanian grocery, sales can look healthy while the net is modest once rent and salaries are paid. So record every expense when it happens, even the small ones. In Ghalleh you log daily expenses and see profit as sales minus cost, which makes the monthly picture clear without waiting for the accountant at year end.

Working out monthly net profit

1. Add up the month's sales
   After returns and discounts.
2. Take away the cost of goods sold
   The cost of what you sold, not everything you bought; what is left is gross profit.
3. Take away monthly expenses
   Rent, salaries, electricity, water, internet and card fees.
4. Add the month's share of yearly costs
   The trade licence and fridge maintenance divided over twelve months.
5. What remains is net profit
   Cash you take from the drawer for yourself is drawings, not an expense and not profit.

Remember that customer debts count as sales but have not reached your pocket yet, so profit on paper is not cash in hand.

A shop example

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