Profit and expenses are the two most vital factors in any business, especially since they are the main elements you can use to measure your online business’s performance, success, and survival. Understanding these can notably help you plan accordingly, as it provides you with figures on how much you are gaining and losing.
Whether you are new to the business industry or a business owner looking for guidance in knowing the profitability of their business, this article can be for you. In this post, we’ll give some tips on how to calculate the profit and expenses of your online business.
How To Calculate Expenses
Expenses generally refer to the costs incurred in running an online business. Some examples include operating costs, supplies, inventory, payroll, hosting fees, domain registration fees, and many more.
Additionally, there’s also a goods and services tax (GST) that is imposed on goods and services that are locally consumed, excluding those specifically exempt from tax. GST is added to what the consumer pays and is remitted to the government. If you own a small online business and have no idea how to calculate GST, the internet has tools you can use.
To start, you calculate your online business expenses by adding all incurred charges. Apart from those mentioned above, here are some of the costs you may factor in:
- Cost Of Goods Sold: The cost of goods sold is any cost or expense relating to the production and sales of your goods. It may vary depending on the type of business you run. It may include raw materials, labor, and packaging.
- Website or Platform: As you are running your online business virtually, the equipment and technology you use is also an essential expense. The cost of owning and running a website, e-commerce platform, mobile app, and other tools can vary considerably depending on your needs.
- Office Space, Rent, Payroll, and Insurance: Depending on the nature of your online business, you can opt to set up an office. You can also employ staff to handle daily operations and customer deliveries and maintain the business site or your chosen platform.
If you have employees, their wages are an expense covered by the revenue from your business. Other overhead charges can also be incurred like telephone bills, cleaning services, and internet charges with an office.
Ideally, you need to deduct this amount from the total revenues before calculating the profits. In addition to staff payroll taxes and insurance, you may need to account for their benefits, such as health insurance or pension plans.
- Taxes, Permits, and Pension Contribution: The tax obligations of an online business can be confusing, but it’s an equally fundamental factor to consider. Taxation takes different items into account.
For instance, it may include taxes, permits and licenses, and pension contributions. You can maximize other helpful calculators and tools offered online for this task for your business.
- Storage: If you’re running an eCommerce business, you’d know how essential storage is. They’ll be used to store and house your goods and products. And depending on the size of your business, you may need to rent a warehouse to sustain your operations. Storage costs usually include rent allocation, warehouse personnel costs, and utilities.
- Shipping And Delivery: Another significant expense of an online business is the shipping and packing costs. If you run a retail trade, you need to know how much it costs to ship products from your warehouse to the customer.
To calculate and estimate these costs, you can take the total amount paid for shipping and packaging materials and add that sum to the total cost of all the products shipped out in a given period.
- Advertising And Marketing Efforts: Advertising and marketing costs can also play a vital role in your expenses. These charges consist of the cost of any ads you purchase, any marketing services you employ, and any other promotional strategies you undertake.
How To Calculate Profits?
Knowing how much your business makes per month allows you to compare your revenue against your expenses. It can significantly help you determine whether or not your business is profitable.
The total income is generally calculated by adding up all the money the business has earned. It includes any revenue from sales, as well as any money made from other sources. The formula for calculating the net profit includes subtracting the total expenses incurred from the total revenue.
Wrapping It Up
If you are running an online business, it’s vital to keep a spreadsheet. For one, it can give you a better understanding of your expenses, revenue, and profits. If you feel your expenditure is higher than it should be, you can take a step back from high-level cost items that you can comfortably cut back on.