Economic Profit Calculator

Find true economic profit — revenue minus explicit costs and implicit (opportunity) costs — so you can see if a business is creating value beyond what its owner's time and capital could earn elsewhere.

Quick Facts

Formula
Economic Profit = Revenue − Explicit Costs − Implicit Costs
Implicit costs are the opportunity cost of resources the owner already contributes: foregone salary plus foregone return on invested capital.
Normal profit
Economic profit = $0
Zero economic profit means the business exactly covers every explicit and implicit cost — no better or worse than the next best alternative.

Your Results

Calculated
Economic profit
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Revenue minus explicit and implicit costs
Accounting profit
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Revenue minus explicit costs only
Total implicit costs
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Foregone salary + capital charge
Economic profit margin
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Economic profit as % of revenue

Ready

Enter revenue, costs, foregone salary, invested capital, and the opportunity cost rate, then press Calculate.

How the Economic Profit Calculator works

Economic profit is the profitability test economists use instead of the accounting bottom line. It asks a harder question than accounting profit does: after paying every bill and after accounting for what the owner's own time and money could have earned somewhere else, is the business actually better off running than not? A business can show a healthy accounting profit and still have negative economic profit once opportunity costs are counted.

The formula

Economic Profit = Total Revenue − Explicit Costs − Implicit Costs

Explicit costs are the ordinary out-of-pocket expenses that show up on a P&L: wages paid to employees, rent, materials, utilities, interest, and taxes. Subtracting only these from revenue gives accounting profit — the number that appears in financial statements.

Implicit costs are opportunity costs: resources the owner already supplies that never generate a cash expense but still have value elsewhere. This calculator models two of the most common ones — a foregone salary (what the owner could earn working for someone else instead of running the business) and a capital charge (invested capital multiplied by the opportunity cost of capital, i.e. what that money could earn in its next-best use). Subtracting both categories from revenue gives economic profit.

Worked example

Take $500,000 of revenue, $320,000 of explicit costs, a $60,000 foregone salary, $200,000 of invested capital, and an 8% opportunity cost of capital. Accounting profit is $500,000 − $320,000 = $180,000. The capital charge is $200,000 × 8% = $16,000, so total implicit costs are $60,000 + $16,000 = $76,000. Economic profit is $180,000 − $76,000 = $104,000 — a healthy accounting profit that remains positive even after paying the owner a market salary and a market return on capital.

Reading the result

  • Positive economic profit means the business earns more than every explicit cost plus the opportunity cost of the owner's labor and capital — it is creating value above the next-best alternative.
  • Zero economic profit ("normal profit") means the business exactly covers all explicit and implicit costs. Accounting profit can still look positive here, because it never subtracted the implicit costs in the first place.
  • Negative economic profit means the owner's time and capital would earn more deployed elsewhere, even though the business may still be accounting-profitable.

What moves the result most

The opportunity cost of capital rate is usually the biggest lever, because it applies to the entire invested-capital balance — doubling the rate doubles the capital charge. The foregone salary matters most for owner-operated businesses where the owner's labor is a large share of the value created. Explicit costs and revenue move both accounting and economic profit by the same dollar amount, since implicit costs are unaffected by them.

Limitations

This calculator uses a single-period snapshot with a flat opportunity cost of capital rate that you supply — it does not model taxes, depreciation, or a formal weighted average cost of capital (WACC) the way a corporate Economic Value Added (EVA) analysis would. Treat the foregone salary and capital rate as estimates, and revisit them when market wages or rates of return change.

Frequently Asked Questions

What is economic profit and how does it differ from accounting profit?
Accounting profit only subtracts explicit (out-of-pocket) costs from revenue. Economic profit goes further and also subtracts implicit costs — the opportunity cost of resources you already own, such as the salary you gave up to run the business and the return your invested capital could have earned elsewhere. Economic Profit = Revenue − Explicit Costs − Implicit Costs, so economic profit is always less than or equal to accounting profit.
How is economic profit calculated?
Start with accounting profit (Revenue − Explicit Costs). Then compute implicit costs as your foregone salary plus a capital charge equal to invested capital multiplied by your opportunity cost rate. Economic profit is accounting profit minus those implicit costs.
What does zero economic profit mean?
Zero economic profit is called "normal profit." It means the business is earning exactly enough to cover all explicit costs plus the opportunity cost of the owner's time and capital — no better and no worse than the next best alternative use of those resources.
Why include a foregone salary and cost of capital in the calculation?
Owners often skip a market salary and reinvest their own capital instead of earning a return elsewhere. Those choices have a real cost even though no cash changes hands. Including them shows whether the business is truly creating value above what the owner's time and money could earn in their next-best alternative.

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