Operating profit answers the question store owners ask most at the end of a month: after all the expenses, is anything left? It takes gross profit and subtracts the costs of running the business, even in a quiet month. A store with a healthy gross profit can discover here that it is close to a loss, because advertising, rent and software eat what is left. Below: what operating profit is, the formula, a worked example, how it differs from net profit and how to use it.
What is operating profit
Operating profit, also called operating income or EBIT, is gross profit minus operating expenses. It is measured before interest and taxes.
- What it tests: whether the day-to-day activity of the business is profitable.
- What it excludes: interest, taxes and one-off items outside the business activity.
The formula
Operating profit = gross profit − operating expenses
Operating margin = operating profit ÷ net revenue
Which expenses count
- Marketing and advertising: campaigns, influencers and content.
- Rent: an office, a warehouse or a shop.
- Software and subscriptions: the store platform, management systems and tools.
- Salaries: employees and contractors.
- Professional services: an accountant, advice and insurance.
Product cost, shipping and payment fees are not counted here. They already came off on the way to gross profit.
Example: a store with a healthy gross profit
- Gross profit: 49,500.
- Advertising: 18,000.
- Software: 3,500.
- Rent: 4,500.
- Part-time employee: 9,000.
- Operating expenses: 35,000.
- Operating profit: 14,500.
- Operating margin: 14.5% of net revenue of 100,000.
The figures in this article's examples are illustrative only and do not reflect actual customer data.
Operating profit in an online store
Operating profit helps you decide three things:
- Advertising: if it grows faster than sales, operating profit falls.
- Fixed expenses: a new subscription or higher rent needs extra sales to cover it.
- Growth: selling more does not help if every extra sale also raises your expenses.
Common mistakes
- A supplier invoice that was not collected. A missing expense makes profit look higher than it is.
- A month that was never opened. A month with no expenses recorded is not a month with no expenses.
- Expenses in several currencies. Convert them to one currency before you add them up.
- Splitting by store. Fixed expenses belong to the whole business, so a reliable operating profit for a single store is hard to calculate.
Related measures
- Gross profit: net revenue minus cost of goods sold.
- Net profit: what remains after interest and taxes.
- Profit and loss statement: the report that shows all the steps. See our profit and loss statement guide.
Operating profit in StoreChart
- Profit and loss statement: shows operating profit for a closed month, quarter or year, with the previous period next to it.
- Source of expenses: recurring expenses are recorded in expense management.
- Provisional marker: when the month's invoice collection is not complete, operating profit is marked as provisional.
- Chart: operating profit over the last 12 months.
Frequently asked questions
What is the difference between operating profit and net profit?
Operating profit is measured before interest and taxes. Net profit is what remains after them. Your accountant calculates net profit, because it depends on the tax structure and the financing of the business.
Which expenses count as operating expenses?
Expenses needed to run the business that are not part of the cost of sales: marketing and advertising, rent, software and subscriptions, salaries and more. Many of them are fixed costs that repeat every month.
What should I do when operating profit is negative?
Check gross profit first. If it is reasonable, operating expenses are too high for the level of sales, and advertising is usually the first cost to review. If gross profit is also low, the problem is pricing or product cost.