Profit is the excess revenue of cost. In other words, how much money you made minus how much cost you had. There are things that can make this more complicated such as earnings before taxes and interest but in the simplest form its just an equation.
Gross Profit = Sales Revenue – Cost of Goods Sold (COGS)
Calculate the profit of your good or service. Enter the gross profit and total cost of goods sold in order to determine your gross profit.
Profit is the key indicator in the success of a business. It trumps over revenue or any other metric. The more profit, the more successful your business is in regards to economic success.
Sometimes, especially in accounting, the term economic profit is used. This is used to describe the total value created by a company in a quarter or other time period.
How to increase profit
In reality, there are only two ways to increase profit. Either increase revenue, or decrease costs. How you go about increasing revenue or decreasing costs can definitely vary.
One way to increase revenue is to increase the selling price of your good or service. This is called increasing your margin. Navigate to our margin calculator for more information on this. The calculator above also solves for the margin percentage.
This may have have a negative impact on your business if this reduces your sales. That leads us to the next option. You can increase total profit by increasing the total number of sales you make. You can actually achieve this through decreasing your selling price as counter-intuitive that may sound.
Maybe you aren’t in a position to either increase or decrease your selling price. That’s alright, the other option is to decrease costs. This can be done through a multitude of ways. You can decrease costs through things like design changes or engineering improvements. Or you can decrease costs through different sourcing options such as going through a different supplier or economies of scale. Those are just the tip of the iceberg. There are thousands of ways to reduce your COGS.
Increasing your profit margin will allow your business to grow and generate more revenue, which will in turn generate more profit if done in the correct way. This will then lead to
If you’re interested in learning more about growing your business or if you have a need for other calculators, visit our finance calculators tab above and discover more.
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