The Truth About Profit: What Every Business Owner Must Know

Have you ever found yourself guessing where your profit is actually going? You’re making sales, maintaining expenses, but somehow, the numbers aren’t adding up the way you expected. If you’re not tracking your profit, understanding your margins, or assessing whether your profit is growing or shrinking, you’re leaving both money and business growth on the table.

In this post, we’ll break down three essential things you need to know about profit so you can run a financially healthy and thriving business.

Here’s what we’ll cover:

1. The different types of profit and why they matter
2. How to calculate and track your profit margin percentage
3. How to assess whether your profit is growing or shrinking—and what to do about it

Let’s dive in.

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1. Understanding the Different Types of Profit

Not all profit is created equal. In order to really understand how your business is performing, you need to know the three types of profit that show up on your financial statements.

Gross Profit

Formula: Revenue – Direct Costs = Gross Profit

Gross profit is what remains after you deduct direct costs—the expenses tied directly to delivering your service or product.

Examples of direct costs:

• Subcontractor wages (if they work directly on client projects)
• Payment processing fees
• Shipping costs for physical products
• Cost of goods sold (COGS) for e-commerce businesses

A healthy gross profit margin for service-based businesses is typically 70% or higher. If it’s significantly lower, it might indicate pricing issues or inefficiencies in your delivery process.

Operating Profit

After gross profit comes your operating expenses—costs that exist whether or not you make a sale.

Examples of operating expenses:

• Business licenses
• Software subscriptions
• Rent, phone bills, utilities
• Marketing expenses

If your operating expenses are too high, even strong revenue won’t translate into healthy profit.

Net Profit (Your Bottom Line)

Formula: Operating Profit – Other Expenses + Other Income = Net Profit

Net profit is what’s left after all expenses, taxes, and additional costs are deducted. This is the number that truly determines how much you’re retaining from your revenue.

Pro Tip: If your net profit margin is consistently low despite high revenue, it’s time to re-evaluate your pricing, expenses, and financial strategy.

2. The Importance of Your Profit Margin Percentage

Profit margins give an instant snapshot of how your business is performing.

How to Calculate Profit Margin:
Profit Margin = (Net Profit ÷ Revenue) x 100

Example: If your business earned $100,000 in revenue and had a net profit of $30,000, your profit margin would be 30%.

• Healthy profit margins vary by industry, but for online businesses and service-based businesses, 20-30% is ideal.
• If your profit margin is below 20%, it may be a sign that expenses are eating away at your revenue.

Why does this matter?

• A strong profit margin means your business is running efficiently
• It allows you to hire, invest, and scale strategically
• It ensures you pay yourself consistently

Action Step: Look at your latest financial reports and calculate your profit margin percentage. How does it compare to previous months or years?

3. Is Your Profit Growing or Shrinking? Here’s How to Assess It

Revenue growth means nothing if profit isn’t increasing too.

The key to long-term success is tracking profit trends over time. Look at:

• Month-over-month, quarter-over-quarter, and year-over-year profit trends
• Your profit margin—has it decreased even if revenue increased?
• Expense categories—are costs rising faster than revenue?

Common Signs That Profit Is Shrinking

• Revenue increased, but profit margin decreased—this means expenses grew faster than income
• You hired a bigger team but didn’t adjust pricing to cover the costs
• You invested heavily in tools and subscriptions, but they’re not generating ROI

Real-World Example

I once worked with a client who scaled her revenue from $300K to $500K, but her profit margin dropped from 50% to 30%. Why? Because expenses ballooned faster than revenue growth.

She hired multiple team members, invested in more tools, but didn’t adjust pricing or operational efficiencies to maintain her previous margins. By restructuring her pricing and optimizing her expenses, she was able to increase profitability while sustaining her growth.

Action Step: Compare your expenses and profit margin over the past year. If your revenue grew, but profit stayed the same (or decreased), it’s time to make adjustments.

Final Thoughts: Profit Is More Than Just Revenue

Tracking revenue alone isn’t enough—you need to be intentional about profitability.

Key Takeaways:

• Understand your profit types—Gross Profit, Operating Profit, and Net Profit
• Track your profit margin percentage—aim for 20-30% as a benchmark
• Compare profit trends over time to spot issues and opportunities

By maintaining healthy profitability, you can:

• Pay yourself consistently
• Build financial reserves to weather slow seasons
• Reinvest in business growth strategically

Let’s Talk: Are You Tracking Your Profit?

Which of these profit strategies will you start using in your business?
Leave a comment if you’re watching this on YouTube, or DM me on Instagram at @harmoniouswealth.

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• Track your revenue, expenses, and profit trends
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