How to Calculate the Economic Profit of a Business
Calculating the economic profit of a business requires knowing the expenses and asking price for products and services. Subtract costs from price and you have profit. The cost of producing an item takes into account building costs, labor, supplies and other expenses--which therefore affect how you calculate profit.
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Instructions
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Budgeting Equals Knowledge
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Write down actual expenses if you already are working. Convert numbers into a consistent variable. For example, if you spend $12,000 per year in taxes and $300 per month in office supplies, list $12,000 in taxes and $3,600 in office supplies.
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Estimate expenses if you are not working yet. Speak with someone in the business to tell you how much they spend on resources. Search online for the typical costs of your particular business. Try libraries and bookstores for further resources.
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Gather a range of bids for services and supplies to make an educated decision about how much you want to spend where. Establish priorities: You may want to save on office supplies in order to spend more for quality marketing.
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Budget for mistakes--the unforeseen expenses that even the most experienced business person may not expect. Set aside a conservative amount for "Additional Expenses."
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Analyze your asking price based on expenses, current market value and required profit. If you are selling Nike sneakers that generally go for around $100, you can charge a bit less to try to drive more business into your store, or a bit more to cover expenses.
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Compare a unique product to anything similar that is already being sold. If you are selling your own sneaker, let's say with a new lacing system, evaluate the range of sneakers on the market and choose a price that you believe would optimally serve your interests. If your price is so low that you would have to have an unrealistic number of clients buying per day, you must charge more. If you are charging too much and people are choosing competitive brands, think about lowering your price.
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Tips & Warnings
Consider purchasing budgeting software. Many companies make software customized to a business, whether it is a franchise, a law firm or a retail store. Many cell phones and computers come with a money-management program.
