How to Calculate Net Operating Income for your Shopify Store

The net operating income (NOI) of your eCommerce business is the total revenue minus the total operating expenses. It's a key number to understand, as it helps you evaluate your business's profitability and growth potential.

It's also an important metric to include when selling your eCommerce business. Investors and lenders will want to see this number to assess your financial health.

Gross Revenue

Gross revenue is the amount of money your business earns before all deductions are made for taxes, costs, and expenses. It's the most common way to measure a business's financial health and is used by investors and lenders when evaluating the company.

In a traditional business, gross revenue is calculated over a period of time such as a year, but it can also be done on a monthly or quarterly basis. To calculate your business's gross revenue, first identify all of the income sources you have over this time period. These may include in-store sales, online sales, and interest from investments.

Then, divide that total by the cost of goods sold, or COGS, if your company sells physical items. This includes all of your business's direct costs for manufacturing and sourcing products, as well as any marketing costs you may have.

Next, subtract your business's overhead costs, including rent, utilities, office supplies and salaries, as well as any other expenses you have such as sales and excise tax. After this, you will have your net income, which is your profit or loss for the period.

This can be a great indicator of whether or not you have product-market fit, and it's something that investors will want to look at. However, it's also important to note that a high gross revenue number doesn't always mean that your business is profitable.

Another thing to keep in mind is that the cost of your inventory can be a big factor in determining how much profit you make on your sales. When you know exactly what it costs to make and sell each item, you'll be able to calculate your gross margins more accurately and set more realistic sales goals for your business.

You can use accounting software with reporting features to help you track your gross revenue and gross margins on a regular basis. These tools can save you valuable time and effort, and they ensure that your books are always up-to-date and accurate.

When you compare your gross revenue with your net revenue, you can find out if your aggressive sales tactics are hurting your bottom line. For example, if you have a high gross revenue but low net revenue, it's likely that you are using price discounts too heavily in order to drive more sales. This can lead to a drop in your margins, which is bad news for your business.

Operating Expenses

An eCommerce business will typically generate revenues from a variety of sources, including the sale of goods or services, membership or subscription services, and advertising. Likewise, it may incur expenses ranging from product and content costs to payment processing and transaction costs, shipping, and picking and packaging.

Managing all these expenses is important in order to stay profitable and ensure that you can cover the basic costs of running your eCommerce business. The best way to do this is by tracking your expenses and ensuring that you know exactly what you are spending money on.

Operating expenses or OpEx are costs incurred by businesses in day-to-day operations, which include renting an office space, paying employees, purchasing supplies, and making payments to vendors. These are the expenses that have an impact on a business's profit margin, which is the difference between gross revenue and operating expenses.

To calculate net operating income for an eCommerce buisness, you need to subtract your operating expenses from the total revenue earned during a specific period of time. This is an important number to keep in mind when analyzing your business's financial performance and evaluating its growth.

You can use this figure to see how well your business is performing and whether it needs to make any changes to its strategy in order to achieve better financial results. It can also be used as a benchmark for measuring your business's success against similar companies in the same industry.

A profit margin is another crucial figure that can be used to measure a business's profitability and growth. It's a key factor for investors and creditors when assessing a company's ability to repay debts.

When calculating your business's profitability, consider how much you spent on COGS, operating expenses, and taxes during the same period of time. If you are able to find ways to cut back on these expenses, you can increase your net operating income and ultimately improve your business's overall financial health.

You can reduce your operating costs by reducing the amount of time you spend on daily tasks and automating them as much as possible. This will save you time and money while allowing you to focus on growing your business. You can also consider telecommuting if it makes sense for your business, which can help you to reduce the cost of office space, transportation, and utilities.

Taxes

When evaluating the profitability of an eCommerce business, you will need to consider many factors. One important indicator is the company’s net operating income. This number is used by investors and creditors to assess the operational performance of a business and the prospects for future growth and profitability.

When you calculate net operating income, you subtract all operating expenses from revenue. This includes costs like property taxes and insurance, building management fees, maintenance, utilities, vending machine service charges, laundry machining, and other expenses related to the operation of your business.

Investors and lenders also use net operating income to evaluate a property’s potential cash flow. They also look at NOI to determine the property’s capitalization rate, or cap rate, which is a measure of how profitable the property is in relation to its total cost.

A higher NOI means that the business is generating more cash than it costs to operate and can pay debts or return to investors. In addition, a high NOI means that the business has more growth potential and can expand into new markets.

If you own an eCommerce business, it is critical to understand how to calculate sales tax for your products. You will need to charge customers the appropriate amount of tax and remit it to each state that requires it. This is a time-consuming and expensive task, but it is necessary to comply with local laws and regulations.

This process can be overwhelming and stressful. Fortunately, there are plenty of tools and resources that can help you stay compliant.

For example, Shopify Plus partner Avalara offers a cloud-based solution that makes it easy and affordable to automate state sales tax compliance. This is especially helpful if you sell in multiple states and don’t have a full-time staff member dedicated to this process.

When you sell online, you must charge customers the sales tax that is required in that state and remit it to the correct government agency. If you don’t know the proper tax rates for your product, you should consult a knowledgeable sales tax expert to ensure that you’re paying the correct taxes.

Depreciation

Depreciation is an important cost to calculate because it helps you get a clear picture of how much value your assets have lost during the year. It can also be used to help you understand your business costs better, and it may lower your tax bill as well.

Businesses use a variety of methods for calculating their depreciation expenses. Each method is based on the estimated useful life of an asset and will vary in how it calculates the rate for that asset.

Straight-line depreciation is the simplest and most commonly used method. It works by calculating the full value of an asset over its estimated useful life and allocating this amount evenly to each year for that asset. It is most often used by small businesses that want a simple way to calculate their depreciation expense.

Accelerated depreciation is another method that results in larger deductions early in the life of an asset. This method is best suited for assets that tend to lose more value in the first years of use or are likely to become obsolete quickly.

Double declining is another accelerated depreciation method that is similar to the declining balance method, but it charges double the depreciated percentage on the fixed asset’s net book value or balance. Like the declining balance method, this method provides larger deductions early in the life of assets, minimizing a company’s tax exposure.

Salvage value is the final amount that a company will receive from an asset after it reaches its useful life and has been used for productive purposes. The salvage value is usually a fraction of the cost of an asset.

Calculating the depreciation for an asset requires two calculations: the estimated useful life and the salvage value. The estimated useful life is the number of years a company expects an asset to produce revenue.

The salvage value is the cost of an asset minus the expected residual or disposal value that the company can obtain if the asset reaches its useful life. The calculation is easy to perform, but it requires a lot of data and estimation.

Shopify Development Trends: Most Shopify store owners focus on their digital marketing alongside their web development. Keeping up with the cutting-edge Shopify Apps in ensuring a frictionless checkout for their online store, with additional tools to fill the Shopping Cart. Online shopping continues to grow year-over-year as the user experience improves with tailored customer service practices. Behind the scenes, are Shopify partners such as TheGenieLab. We are helping business owners and shopkeepers to drive continuous improvements through digital marketing services. Furthermore, they are providing Web Development in Shopify, BigCommerce, and other eCommerce store architectures. If you need a hand in any aspect of eCommerce, feel free to reach out to us at wish@thegenielab.com