Total revenue minus all expenses, taxes, and costs — the "bottom line" of the income statement. Represents the actual profit a business earns after all deductions.
Understanding Net Income
Net income is the final profit figure on the income statement — total revenue minus all expenses, taxes, interest, and costs. Often called the "bottom line," it represents the actual amount of money a business earns (or loses) after every deduction has been accounted for.
Net income flows into the equity section of the balance sheet as retained earnings (if not distributed to owners). It is the single most comprehensive measure of a company's profitability and is used to calculate key ratios like return on equity and earnings per share.
For small ecommerce businesses, net income is what's available for the owner to draw as compensation, reinvest in inventory, or save for taxes. Understanding the difference between revenue and net income is crucial — a business can have strong revenue but negative net income if expenses are too high.
Why It Matters for Ecommerce
Many ecommerce sellers focus on top-line revenue ("I did $100K last month!") while ignoring the bottom line. After accounting for COGS, marketplace fees, shipping, advertising, returns, software, and taxes, net income might be only 5-15% of revenue. Tracking net income monthly is the only way to know if your business is actually profitable.
Practical Example
Your Shopify store generates $30,000 in monthly revenue. COGS is $12,000, marketplace and payment fees are $2,400, shipping is $3,000, advertising is $4,500, software subscriptions are $500, and estimated taxes are $2,000. Net income is $5,600 — an 18.7% net margin. Without tracking all these costs, you might think you're keeping far more than you actually are.
Related Terms
Gross Profit
Revenue minus the cost of goods sold (COGS). Measures how efficiently a business produces or sources its products before accounting for overhead, taxes, and other operating expenses.
AccountingIncome Statement
A financial statement showing revenue, expenses, and profit or loss over a specific period. Also called a profit and loss statement (P&L), it measures a company's financial performance.
AccountingRetained Earnings
The cumulative net income a business has kept rather than distributing as dividends to owners. Appears in the equity section of the balance sheet and grows over time as the business profits.
Related Tools
Free PrimeConnect tools related to net income
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