Economic Profit Calculator

Background.

A bakery that clears $70,000 after paying for flour, staff and rent looks like a success on its income statement. Whether it is one depends on what its owner gave up to run it. If she left a job paying $85,000 to open it, the shop is costing her $15,000 a year, even though no ledger anywhere records a loss.

Economic profit makes that comparison explicit. Accounting profit subtracts the costs a business actually pays: wages, supplies, rent, interest, depreciation. Economic profit goes one step further and also subtracts implicit costs — the value of resources the owner supplies without being billed for them. The usual ones are the owner's working time, priced at what it would earn in a realistic alternative job; the return the owner's own money could earn if it were invested elsewhere rather than tied up in stock and equipment; and the rent an owned building or vehicle could command if the business were not using it.

The answer is read against zero. A positive figure means the venture earns more than the same time and money would earn in their next-best use. Zero, which economists call normal profit, means it earns exactly that — a respectable outcome, not a failure. A negative figure means the resources would do better elsewhere, at least in money terms.

All of the judgement sits in the implicit-cost figure, which this page takes as given: it subtracts whatever you enter and does not estimate a salary or a fair return for you. Price each resource at one realistic alternative rather than the best imaginable one, and compare like with like — if your accounting profit is before tax, value your forgone salary before tax as well.

What is economic profit calculator?

Economic profit is total revenue minus all costs, where costs include both explicit costs (money actually paid out) and implicit costs (the opportunity cost of resources the owner provides). Because accounting profit already subtracts the explicit costs, economic profit equals accounting profit minus implicit costs. It is a decision measure from economics, not a figure that appears on financial statements or tax returns.

How to use this calculator.

1. 01Enter accounting profit for the period from your income statement: revenue minus every cost you actually paid, including depreciation. A loss can be entered as a negative number.
2. 02Add up your implicit costs for the same period. For your own time, use the pay you could realistically earn elsewhere for similar hours; for money you have invested in the business, use the return it could earn in a comparable alternative.
3. 03Leave out anything already deducted in accounting profit — if the business pays you a salary or pays rent on your building, that cost is explicit and is already counted.
4. 04Enter the total as implicit opportunity costs and read the result: positive means the business beats your alternatives, negative means the alternatives would pay more.

The formula.

Economic profit = accounting profit − implicit opportunity costs. Accounting profit is revenue less explicit costs, the payments that appear in the books. Implicit opportunity costs are the earnings the owner's own resources could have generated in their next-best use: forgone wages, forgone investment returns and forgone rent. Subtracting them asks a different question from the accountant's: not "did the business make money?" but "did it make more than I could have made otherwise?" The subtraction is one-for-one, so every dollar added to your estimate of implicit costs removes a dollar of economic profit. In practice the forgone salary is usually the largest term, which is why small owner-run firms can show healthy accounting profits and negative economic ones.

A worked example.

Frequently asked questions.

References& sources.

1. [1]OpenStax, Rice University. Principles of Finance, 2022. Chapters 6–10. Retrieved 2026-08-06.
2. [2]U.S. Internal Revenue Service. Tax guidance current 2026. Official forms, instructions and tax topics. Retrieved 2026-08-06.
3. [3]U.S. Securities and Exchange Commission. Investor.gov current 2026. Investment products and risk. Retrieved 2026-08-06.