My guess is, back when Bill Holley first sketched out Cracker Barrel’s original logo on a napkin, he didn’t imagine its retirement would cause a nationwide uproar. 

The restaurant chain, known for its comfort food and front-porch nostalgia, recently unveiled a simplified logo. (I’ll let you form your own opinions about the new look):

On social media, some longtime fans called it cold and sterile. Others wanted the “old Cracker Barrel” back. A few even suggested the redesign carried political undertones.

Safe to say, it wasn’t the quiet rebrand they’d hoped for.

Which goes to show a core truth about running your business: Profitability and success aren’t only about trimming expenses or pushing for higher sales numbers. They hinge on what your customers actually value.

Sometimes it’s not just the buttermilk biscuits or the fried apples, but the feeling they associate with your brand.

It’s a helpful principle as you aim to run a profitable business, definitely. But today, we’re going to take a look at the math side of that profitability: how to calculate whether or not your business is profitable (and what that means for the decisions you make moving forward).

How Can Business Owners Know They’re Running A Profitable Business?

“Profitability comes from loyalty, productivity, and having a character base from which to work.” – Zig Ziglar

 

Quick Summary: How Do I Know I’m Running A Profitable Business?

• Profitability is how efficiently you’re turning revenue into profit (not how much cash you have).
   
• The net profit margin ratio is one of the clearest ways to tell if your business is actually profitable.
   
• A “good” margin varies by industry.
   
• If your margin is lagging, the numbers point you to where changes need to happen.

Netflix launched its self-produced shows in 2012. In the following decade, while its costs grew rapidly, its revenue grew even faster. Profitability ratios improved, even as the company poured billions into content.

That’s the power of measuring profitability with the right ratios.

Having cash in the bank does NOT always mean your business is profitable.

So, then, how do you determine if you have a profitable business? Let me show you…

 

How Do I Measure My Business’s Profitability? 

Profit = Dollars left after expenses 

Profitability = How efficiently those dollars are created compared to revenue 

There are plenty of ratios out there to measure profitability. But to start, I’d recommend focusing on your net profit margin. 

Why?

1. It accounts for everything: cost of goods, overhead, taxes, debt payments, even one-off expenses.
    
2. It’s straightforward: If your margin is 12 percent, it means you’re keeping 12 cents from every dollar you bring in.
    
3. It’s actionable. A low margin tells you right where to start digging.
    
4. You can measure yourself against both past performance and industry averages.

Now, you should also keep an eye on your gross profit margin (your revenue minus the cost of goods sold) and operating profit margin (what’s left after all operating expenses). They can pinpoint more specific issues with pricing or overhead before they affect your bottom line.

But net profit margin is the best place to start, because it gives you a more comprehensive picture of your business’s profitability. 

 

How Do I Calculate My Net Profit Margin?

Here’s the formula: 

Net Income ÷ Total Revenue x 100 = Net Profit Margin Percentage

Let’s run through an example together. Imagine a small neighborhood bakery:

– Revenue: 50K in sales this quarter

– Cost of goods sold: 15K (flour, sugar, butter, eggs, etc.)

– Operating Expenses: 20K (rent, wages, utilities, marketing)

– Other Expenses: 500 dollars (oven repair)

– Loan Interest: 250 dollars

– Taxes: 3K

Step 1: Find your net income. Subtract all your expenses from your total revenue. For our bakery example, this would be:

50K – 15K – 20K – 500 dollars – 250 dollars – 3K = 11.25K net profit

Step 2: Divide that total by your revenue.

11.25K ÷ 50K = 0.225

Step 3: Convert that number to a percentage by multiplying by 100.
 0.225 x 100 = 22.5 percent net profit margin

That’s a very strong margin. This bakery is not just a profitable business. It’s profitable enough to reinvest, hire, or weather slower sales months.

 

How Do I Know If My Net Profit Margin is Good?

Check your business’s net profit margin against the average for your industry. Here’s the average for these industries in 2025:

• Agricultural inputs: 1.2 percent
   
• Personal services: 10.5 percent
   
• Consulting: 7.2 percent
   
• Education and training services: 8.1 percent
   
• Engineering and construction: 4.9 percent
   
• Apparel retail: 2.1 percent
   
• Medical care facilities: 0 percent
   
• Real estate services: 0 percent
   
• Restaurants: 3.5 percent

(And if your industry didn’t make the cut, you can check the full list here.)

 

FAQ

“How often should I calculate my net profit margin?”

Most small businesses calculate net profit margin quarterly. If your cash flow is tight or your industry is volatile, doing it monthly is even better.

“Can I be profitable and still have cash flow problems?”

Yes. Profitability measures efficiency; cash flow measures timing. For example, you might show a profit on paper, but if your customers are slow to pay invoices, you could struggle to cover bills.

“Why can’t I pay myself even though my business is profitable?”

Often it’s a pricing or expense-structure issue. Some owners underpay themselves to keep margins up. A healthy business should sustain both itself and you as the owner.

“How do I improve my net profit margin?”

You can improve your net profit margin by (1) raising prices, (2) cutting unnecessary expenses, and (3) improving efficiency. Many owners also look at reducing debt or renegotiating vendor contracts. Sometimes it’s a combination of all of these.

“Should I compare my profit margin to national industry averages or just local competitors?”

Both. National benchmarks give you a big-picture view. Local comparisons tell you what your customers are accustomed to paying.

“What’s more important: profit, profitability, or cash flow?”

All three matter, but profitability is the best long-term indicator. Profit is a snapshot. Cash flow is your day-to-day oxygen. Profitability shows if your business model really works. For long-term health, profitability is the best indicator.

 

Where Do You Go From Here?

If you run the numbers and discover your margin is thinner than you’d like… don’t panic.

What matters is how quickly you catch it and put a plan in place. That could mean re-evaluating your pricing, trimming unnecessary expenses, or restructuring how you operate.

All things that my team and I can help you with. 

So if the numbers worry you, let’s build a strategy to move you toward better profitability:
calendly.com/eco-tax-free-consultation/meeting

 

Helping you build a profitable business,

The Eco-Tax Team