Net income (also called net profit or "the bottom line") is the total profit remaining after ALL expenses have been deducted from revenue — including COGS, operating expenses, interest, and taxes. Formula: Net Income = Revenue − Total Expenses.

What is the difference between net income and gross profit?

Gross profit only subtracts COGS (direct production costs). Net income subtracts everything: COGS + operating expenses (rent, salaries, marketing) + interest + taxes. Net income is always lower than gross profit.

What is a good net profit margin?

Average net profit margins by industry: Software/SaaS: 15–25% | Professional services: 10–20% | Retail: 2–5% | Restaurants: 3–9% | Manufacturing: 5–10%. A net margin above 10% is generally considered healthy across most industries.

Can net income be negative?

Yes. Negative net income means the business spent more than it earned — a net loss. This is common for early-stage startups investing heavily in growth. Sustained negative net income indicates a business model problem that needs addressing.

Business Finance

How to Calculate Net Income: Formula, Examples & Net Profit Margin

Net income — also called net profit or "the bottom line" — is the most important profitability metric in business. It's what's left after every single expense has been paid: production costs, salaries, rent, interest, and taxes. This guide explains the formula, walks through real examples, and shows you how to interpret your net margin.

The Net Income Formula

Net Income = Revenue − COGS − Operating Expenses − Interest − Taxes

Net Profit Margin = (Net Income ÷ Revenue) × 100

Start with RevenueTotal sales income

Subtract COGSDirect production costs → = Gross Profit

Subtract Operating ExpensesRent, salaries, marketing, admin → = Operating Profit (EBIT)

Subtract InterestLoan interest payments → = Pre-tax Income (EBT)

Subtract TaxesIncome tax → = Net Income

Net Income Calculator

Revenue ($)

COGS ($)

Operating Expenses ($)

Interest Expense ($)

Income Taxes ($)

Revenue$100,000

− COGS$40,000

= Gross Profit$60,000

− Operating Expenses$30,000

= Operating Profit (EBIT)$30,000

− Interest$2,000

− Taxes$7,000

= Net Income$21,000

Net Profit Margin21.0%

Full Profit Calculator

Real Example: Small Business Income Statement

Line Item	Amount	% of Revenue
Revenue	$250,000	100%
Cost of Goods Sold (COGS)	($90,000)	-36%
Gross Profit	$160,000	64%
Salaries & Wages	($60,000)	-24%
Rent & Utilities	($18,000)	-7.2%
Marketing	($12,000)	-4.8%
Other Operating Expenses	($10,000)	-4%
Operating Profit (EBIT)	$60,000	24%
Interest Expense	($5,000)	-2%
Income Taxes (25%)	($13,750)	-5.5%
Net Income	$41,250	16.5%