Your gross profit says whether the work is profitable. Your net profit says whether you are actually in business.
Leave anything that does not apply blank or set to zero.
Gross profit
$82,000.00
Net profit
$3,400.00
Net margin
2.8%
Gross margin
68.3%
Total operating expenses
$78,600.00
Expenses as % of revenue
65.5%
| Line | Amount | % of revenue | Share |
|---|---|---|---|
| Revenue | $120,000.00 | 100.0% | — |
| Cost of goods sold | −$38,000.00 | 31.7% | |
| Rent / mortgage | −$18,000.00 | 15.0% | |
| Salaries and wages | −$42,000.00 | 35.0% | |
| Marketing | −$8,500.00 | 7.1% | |
| Software | −$2,400.00 | 2.0% | |
| Insurance | −$3,200.00 | 2.7% | |
| Utilities | −$1,900.00 | 1.6% | |
| Professional fees | −$1,400.00 | 1.2% | |
| Other | −$1,200.00 | 1.0% | |
| Net profit | $3,400.00 | 2.8% |
Gross profit answers one question: is the core work worth doing? Net profit answers a different one: can you survive doing it? A business with70% gross margin can still lose money if rent and salaries total more than that margin.
The most common failure pattern among small businesses is not bad pricing. It is overheads that grew faster than revenue, usually fixed costs such as a lease or salaried staff committed at a higher volume than the business ended up delivering.
| Category | Typical items |
|---|---|
| Premises | Rent or mortgage, property tax, utilities, internet, cleaning |
| People | Salaries, wages, payroll taxes, benefits, workers comp, recruitment |
| Marketing | Advertising, content production, email tooling, commissions, referral fees |
| Technology | Software subscriptions, hosting, hardware, IT support |
| Insurance and legal | Liability, professional indemnity, workers comp, legal and accounting fees |
| Finance | Bank charges, merchant processing fees, payment gateway fees, interest |
| Travel and vehicle | Fuel, mileage, maintenance, parking, travel |
Interest and income tax are commonly reported below the net line rather than as operating expenses. If you want a figure that includes them, add them into the final expense boxes so you can see the after-tax position.
| Net margin | What it signals |
|---|---|
| Below 0% | Losing money. Every month without a change deepens the loss. |
| 0–5% | Technically profitable, but one bad month can push you under. |
| 5–10% | Thin. Enough to operate, not enough to absorb a shock. |
| 10–20% | Healthy for most small businesses. This is a reasonable target. |
| 20–30% | Strong. You have room to invest in growth and absorb surprises. |
| Above 30% | Usually only realistic in software, agencies, or professional services. |
Gross profit is revenue minus the direct cost of delivering what you sold. Net profit is what remains after every operating expense as well: rent, salaries, software, insurance, marketing, interest and tax. Gross profit tells you whether the core work is profitable. Net profit tells you whether the business is. A company can show strong gross profit and still be losing money once overheads are counted.
This is the most common pattern in small business, and it almost always means overheads exceed what the current revenue level can carry. The usual causes are fixed costs committed for a higher volume than you ended up delivering, such as a lease or salaried staff, or variable operating costs that scale without matching revenue, such as marketing and subscriptions. Use the breakdown table above to identify which category is largest, since that is where a change will make the most difference.
If the subcontractor performs the core work that delivers your product or service, their cost belongs in cost of goods sold. If they provide a supporting service such as accounting, cleaning or marketing, it is an operating expense. The distinction affects your gross margin, so be consistent and apply the same treatment period after period.
Monthly is the practical minimum, because it lets you catch a cost creeping up before it becomes structural. Quarterly is better for seasonal businesses where a single weak month is not meaningful. The value is not the number itself but the trend: a net margin falling steadily means costs are growing faster than sales, and you want to see that while it is still fixable.
For measuring business performance, yes. Your compensation is a real cost of running the business. However, if you are calculating taxable income, the treatment differs, because your pay appears as payroll rather than as an expense on a business return. For a true picture of what the business leaves you with, include it.