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A Complete Guide to Net Profit for Shopify Store Owners

Learn how to accurately calculate net profit for your Shopify store without any errors. Discover effective strategies to boost your store's net profitability.

Mar 21, 2025

"While the gross margin of ecommerce companies is at 41.54%, the average net margin lingers at 7.26%."

A critical insight from a study by NYU Stern School of Business.

As an ecommerce owner, it’s common to dedicate significant time and resources to generating sales and ensuring customer happiness. But, how often do you track your profits—especially your net profit?

Net profit is the most crucial financial metric that measures the financial health of your ecommerce business. It reveals how much money you actually keep after covering all expenses, including product costs, marketing spend, and operational expenses.

You might spend hundreds of hours acquiring customers, optimizing your store, and growing your revenue. However, all of that effort is wasted if your business fails to retain meaningful revenue after all expenses are deducted.

By tracking your net profit daily, you gain clarity on your store’s financial performance, ensuring that every decision you make contributes to long-term success. In this guide, we’ll break down what net profit means for ecommerce owners, how to calculate it, and strategies to improve it.

What is Net Profit?

Net profit is the actual profit your ecommerce store makes after subtracting all expenses. This metric is often referred to as:

Net Income
Bottom Line
Profit After Tax
Net Earnings

Unlike revenue, which only shows how much money you’re bringing in, net profit accounts for all operating costs, giving you a clearer picture of your store’s profitability.

Formula for Net Profit:

(Net Profit = Total Revenue−Total Expenses )

Where:

Total Revenue includes all income from sales, shipping fees, subscriptions, and other business-related income.
Total Expenses include cost of goods sold (COGS), advertising costs, rent, salaries, utilities, taxes, and transaction fees.

If your net profit is positive, your business is making money. If it’s negative, you’re operating at a loss.

To understand net profit better, let’s explore the differences between gross profit and net profit.

Gross Profit vs. Net Profit: What’s the Difference?

Many ecommerce owners confuse gross profit with net profit. Understanding the distinction is key to making strategic financial decisions.

Gross Profit

Gross profit is the difference between revenue and the cost of goods sold (COGS). It does not account for other operating expenses like marketing or rent.

(Gross Profit = Revenue−COGS)

For example, if your online store generates $100,000 in revenue and your COGS is $40,000, your gross profit is $60,000.

However, gross profit does not represent the actual profit because it doesn’t include business expenses like advertising, payroll, and rent.

Net Profit

Net profit is the true measure of your store’s profitability because it factors in all expenses.

(Net Profit = Gross Profit−Expenses)

If your gross profit is $60,000, but your operational costs (advertising, rent, salaries, taxes) amount to $50,000, your net profit is only $10,000.

Key Takeaway: While gross profit is useful for understanding product profitability, net profit is the real indicator of your business’s financial health.

How to Calculate Net Profit for Your Ecommerce Store

Basic Formula for Net Profit

(Net Profit = Total Revenue−Total Expenses)

This is the simplest way to calculate net profit. However, for more detailed insights, consider this expanded formula:

(Net Profit = Revenue−COGS−Expenses−Interest−Taxes)

Where:

COGS (Cost of Goods Sold) refers to the direct costs of producing or purchasing products.
Expenses include operating costs such as marketing, salaries, software subscriptions, warehouse rent, and transaction fees.
Interest is any interest paid on business loans.
Taxes are the taxes paid on your store’s income.

Example Calculation:

Imagine you run an online leather bag store and sell each bag for $750. Last year:

You sold 1,000 units, generating $900,000 in revenue.
Your COGS per bag is $350, leading to $350,000 in COGS.
Your operating expenses (advertising, salaries, rent) totaled $300,000.
You paid $50,000 in interest and $100,000 in taxes.

Using the formula:

Net Profit = 900,000−350,000−300,000−50,000−100,000
Net Profit = $100,000

Your net profit for the year is $100,000, with a net profit margin of 11.12%.

Net Profit Margin = (Net Profit/Total Revenue)x100Net Profit Margin = (Net Profit / Total Revenue) x 100 (100,000/900,000)x 100=11.12(100,000 / 900,000) x 100 = 11.12%

If your net profit margin is increasing, your store is becoming more efficient. If it’s decreasing, you need to take action.

How to Improve Net Profit in Your Ecommerce Store

1. Increase Revenue

Higher revenue doesn’t always mean higher profit, but optimizing pricing, sales strategies, and customer retention can boost your bottom line.

Optimize Pricing: Conduct A/B testing to determine the best pricing strategy.
Introduce Subscription Models: Encourage recurring purchases with subscription-based pricing.
Improve Customer Retention: Offer loyalty programs, email marketing campaigns, and exclusive discounts to existing customers.
Increase Average Order Value (AOV): Suggest bundled deals or cross-sell complementary products.
Reduce Cart Abandonment: Implement automated email reminders to recover lost sales.

2. Lower COGS

Reducing COGS can significantly improve your profit margins.

Negotiate Better Supplier Deals: Bulk purchasing can help lower unit costs.
Diversify Suppliers: Find cost-effective alternatives without sacrificing quality.
Optimize Shipping Costs: Partner with logistics providers for bulk shipping discounts.

3. Reduce Operating Expenses

Cutting unnecessary expenses can directly increase net profit.

Optimize Ad Spend: Focus on high-converting channels and track ROAS (Return on Ad Spend).
Automate Business Operations: Use AI chatbots for customer service and automated accounting tools.
Reduce Refunds and Returns: Offer detailed product descriptions and realistic images to minimize returns.

Conclusion: Track and Improve Your Net Profit with Analytics

Understanding and optimizing net profit is essential for long-term ecommerce success. By tracking daily net profit, reducing unnecessary expenses, and strategically increasing revenue, you can build a sustainable, profitable ecommerce store.

Use Bloom Analytics for Accurate Profit Tracking

Even with the best strategies, tracking net profit manually is overwhelming. Tools like Bloom Analytics automate profit tracking by integrating with Shopify, Google Analytics, and Meta Ads, giving you real-time insights into revenue, expenses, and customer behavior.

Start your free trial today and take control of your ecommerce profitability.

FAQs

1. Where can I find my net profit in Shopify? Shopify provides reports on profit and revenue, but for deeper insights, use Bloom Analytics.

2. What is net loss? Net loss occurs when expenses exceed revenue, indicating an unprofitable business.

3. What are common ecommerce business expenses?

Salaries
Rent & Utilities
Ad Spend
Shipping & Handling
Transaction Fees

By mastering net profit analysis, you can grow your ecommerce business sustainably and profitably!

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