Profit is the difference between what it costs to produce something and what you sell it for.
If you’re selling a product for more than it costs, you’re making a profit. It indicates how your business is functioning and performing in the market.
To calculate your profit, you need to consider a wide range of costs, like material costs, labor costs, overhead expenses, and marketing costs.
- Positive number – you’re turning a profit
- Negative number – your business is losing money
- Zero – you’re breaking even
For example, your business has a revenue of $80,000 per year, and your expenses are $20,000, so your net annual profit is $60,000.
Profit = Revenue – Expenses