How to Calculate Operating Income (Formula & Examples) in 2025
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Operating income is a key ecommerce metric that shows how much profit your Shopify store makes from its core business operations. It tells how much you earn after deducting product costs and business expenses like marketing, app subscriptions, and employee salaries.
Operating Income Formula: How to Calculate It
The operating income formula is:
Operating Income = Gross Income - Operating Expenses
To break it down further:
Gross Income = Revenue - Cost of Goods Sold (COGS)
Operating Expenses include store-related costs such as Shopify fees, marketing expenses, salaries, and shipping costs.
Operating income is also known as Earnings Before Interest and Taxes (EBIT) because it focuses only on the revenue and costs directly tied to running your store.
Image source: Amazon’s Consolidated Statements Of Operations
Sample Calculation of the Operating Income Formula
Let’s say you run an online store selling custom apparel. Here’s an example of how you’d calculate operating income:
- Total Revenue: $50,000
- Cost of Goods Sold (COGS): $20,000 (includes product sourcing and manufacturing)
- Gross Income: $50,000 - $20,000 = $30,000
- Operating Expenses: $10,000 (marketing, Shopify apps, shipping, rent, salaries)
- Operating Income: $30,000 - $10,000 = $20,000
In this case, your store generates $20,000 in profit from operations before taxes and interest.
What are Direct and Indirect Costs?
Understanding your costs is crucial for accurate profit calculations and customer profitability analysis. Your Shopify store’s expenses fall into two main categories:
- Direct Costs (COGS): These are costs directly tied to product sales, such as wholesale product costs, manufacturing, and shipping fees.
- Indirect Costs (Operating Expenses): These include expenses like advertising, website hosting, software subscriptions, and customer service wages.
Knowing the difference helps you allocate resources effectively and improve profitability.
Operating Income = EBIT
EBIT (Earnings Before Interest and Taxes) is another term for operating income. It excludes financing costs, making it a reliable indicator of your store’s operational efficiency.
If your Shopify store has high revenue but low operating income, it may be a sign that your expenses are eating into profits.
Why is the Operating Income Important for Your Shopify Business?
Understanding your store’s operating income helps you make informed financial decisions and optimize profitability. By analyzing this metric, you can:
- Evaluate Profitability: It helps you see if your store is making real profit from selling products, not just generating revenue. Check this article to understand the key difference between net profit vs. revenue.
- Guide Pricing Strategies: If your operating income is low, you may need to adjust product pricing strategies or reduce costs.
- Attract Investors or Loans: A strong operating income makes your store more attractive to potential investors or lenders.
- Help With Business Growth: Understanding operating income allows you to reinvest wisely into ads, product expansion, or improving customer experience.
Want to go beyond operating income and see your true net profit? Use our free Net Profit Margin Calculator to instantly measure your store’s financial health. Simply enter your revenue, COGS, and expenses to get a clear picture of your profitability. Try it now
Operating Income Formula FAQs
How to calculate the operating income?
Operating income = Gross profit - Operating expenses. Operating expenses include costs like rent, salaries, and utilities.
Is operating income the same as EBIT?
No, operating income and EBIT are not the same. EBIT includes non-operating income and expenses, while operating income only accounts for revenue minus operating expenses.
What is included in operating income?
Operating income includes gross income minus operating expenses and depreciation. It excludes interest, taxes, investments, and one-time costs.
Is operating income the same as gross profit?
No, operating income is not the same as gross profit. Gross profit is revenue minus the cost of goods sold (COGS), while operating income subtracts operating expenses from gross profit.
What is not included in operating income?
Operating income does not include non-operating items like taxes, interest payments, and investments in other businesses.
What is operating income vs. revenue?
Revenue is the total income before expenses, while operating income is what remains after deducting operating expenses like COGS, salaries, and rent.
Is EBIT the same as operating income?
EBIT and operating income are similar but not always the same. Operating income excludes non-operating income and expenses, while EBIT includes them except for interest and taxes.
What is total operating income?
The total operating income is the same as the operating income and has the same operating income formula to compute.
What is an example of operating income?
Here is a hypothetical example of calculating operating income:
- Your business generated $500,000 in sales revenue this year.
- The items sold for the period were $80,000
- The rent fee was $10,000
- Maintenance costs were $1,500
- Insurance was $4,000
- Net employee compensation was $60,000
Using the operating income formula, your business has a total operating income of $344,500. For better understanding, scroll up to see real-life examples of operating income.
Understanding operating income formula is essential for evaluating a company's core profitability and making informed business decisions.
By using the 2025 formula and real-world examples, you can gain clearer insights into operational efficiency and financial health. Whether you're a business owner, investor, or student, mastering operating income helps you analyze performance beyond the top line.
Senior Content Executive at TrueProfit & SEO/Content Specialist
Tracy is a senior content executive at TrueProfit – specializing in helping eCommerce businesses scale profitably through content. She has over 4 years of experience in eCommerce and digital marketing editorial writing. She develops high-impact content that helps thousands of Shopify merchants make data-driven, profit-focused decisions.
