You've been working hard to develop your business, whether it's shoveling walks for your neighborhood, building websites, or tutoring kids for the SAT.

It's time to figure out how much you made so you count the cash in the box under your bed. Easy, right?

One Does Not Simply

Types Of Profits

There are three types:

  • Gross

  • Operating

  • Net

Calculating Oh No GIF by MOODMAN

Luckily, you can easily calculate them. You'll need accurate numbers to report your profits on your taxes, loan applications, or and other business needs.

Gross Profits

Gross profits are the total sales/income minus the cost of goods. Goods are the items that are resold or the materials used to make the items that you sell.

Example

Flaticon IconAran bakes and decorates custom cakes.

In 2020 Aran sold $20,000 worth of cakes. (Total sales)

Aran also bought $4,000 worth of cake-baking supplies.(Cost of goods)

Total Sales - Cost of Goods = Gross Profits

$20,000 - $4,000 = $16,000

Aran's gross profits are $16,000.

Operating Profits

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Operating profits are the profits remaining after the "costs of doing business."

Costs of doing business include:

  • Travel costs

  • Employee salaries

  • Utilities

  • Advertising

  • Rental spaces

  • Licenses

Operating profits are calculated as gross profits minus the cost of doing business.

Example

Flaticon Icon

In 2020 Aran's gross profits were $16,000.

Aran also spent:

  • $200 on gas/mileage for deliveries

  • $350 on employees for a big job

  • $50 for advertising

  • $5,400 for rent and utilities

200+350+50+5400=6000

In 2020 Aran's cost of business was $6,000.

Gross Profits - Cost of Business = Operating Profits

$16,000 - $6,000 = $10,000

Aran's operating profits are $10,000.

Net Profits

Net profits are what remains after taking all other expenses into consideration. That is to say: what you actually earned.

Example

Flaticon IconIn 2020 Aran's operating profits were $10,000.

Aran's taxes were $2,500. There were no loans with interest.

Operating Profits - Taxes & Interest = Net Profits

$10,000 - $2,500 = $7,500

Aran's net profits are $7,500.

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Try It Yourself!

Determine the three types of profits for Rowan's Bait Shop: he could really use your help!

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Remember:

  • Gross Profits = Total Income - Material Costs

  • Operating Profits = Gross Profits - Cost of Business

  • Net Profits = Operating Profits - Taxes & Interest

In 2020, Rowan's Bait Shop took in $90,000 total income on merchandise sales.

Expenses:

  • $5,000 for material merchandise that was sold in the shop

  • $35,000 for other business costs (utilities, employees, advertising, etc.)

  • $10,000 for taxes (there was no interest this year)

Quiz

What are the Gross (G), Operating (O), and Net (N) profits of Rowan's Bait Shop?

G=$55,000; O=$45,000; N=$40,000

G=$85,000; O=$50,000; N=$40,000

G=$85,000; O=$75,000; N=$40,000

G=$55,000; O=50,000; N=$40,000

Take Action

Organize your income and expenses to figure out your three different profits! Remember:

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This Byte has been authored by

EC

Elizabeth Cahill

she/her/hers | Curriculum & Instructional Designer