Business Math 101: A Quick Reference Guide for Entrepreneurs Who Don’t Love Math

If you’re gonna hustle, you better know your numbers.

You don’t need to be a CPA or a spreadsheet wizard to run a successful small business.

But if you don’t understand the math behind your margins, pricing, and profitability… well, let’s just say your “great idea” might end up bleeding cash faster than you can say “why am I broke?”

That’s where Business Math 101 comes in—a no-fluff, quick-reference guide with 12 common calculations every small business owner should know. Each one comes with the formula and a real-world example so you can apply it today.

Ready? Let’s do some math that actually matters.

1. Gross Profit

Formula: Gross Profit = Revenue – Cost of Goods Sold (COGS)

Use it when: You want to know how much you made before overhead.

Example: You sell $10,000 worth of product. It cost you $4,000 to produce. $10,000 - $4,000 = $6,000 gross profit

2. Gross Profit Margin

Formula: Gross Profit Margin (%) = (Gross Profit / Revenue) × 100

Use it when: You want to measure how efficient your core business is.

Example: $6,000 / $10,000 = 0.6 × 100 = 60% margin

A 60% margin is strong—it means you’re keeping 60 cents for every dollar in sales before overhead.

3. Net Profit

Formula: Net Profit = Total Revenue – Total Expenses

Use it when: You want to know what’s actually left in your pocket.

Example: Your revenue is $10,000. Total expenses (COGS, rent, salaries, etc.) are $8,000. $10,000 - $8,000 = $2,000 net profit

4. Net Profit Margin

Formula: Net Profit Margin (%) = (Net Profit / Revenue) × 100

Use it when: You want to know your real profitability.

Example: $2,000 / $10,000 = 0.2 × 100 = 20% net profit margin

5. Break-Even Point

Formula (Units): Break-Even Units = Fixed Costs / (Selling Price – Variable Cost per Unit)

Use it when: You want to know how many units you need to sell before you stop losing money.

Example: Fixed costs: $5,000 Selling price per unit: $50 Variable cost per unit: $30 $5,000 / ($50 - $30) = 250 units

Sell 250 units just to cover your expenses. Profit starts at 251.

6. Markup Percentage

Formula: Markup (%) = (Selling Price – Cost) / Cost × 100

Use it when: You want to price your products correctly and cover costs.

Example: You buy a product for $20 and sell it for $35. ($35 - $20) / $20 × 100 = 75% markup

7. Revenue Growth Rate

Formula: Growth Rate (%) = [(Current Period Revenue – Previous Period Revenue) / Previous Period Revenue] × 100

Use it when: You want to see how fast your business is growing (or shrinking).

Example: Last month: $8,000 This month: $10,000 ($10,000 - $8,000) / $8,000 × 100 = 25% growth

8. Inventory Turnover Ratio

Formula: Inventory Turnover = COGS / Average Inventory

Use it when: You want to see how fast you’re moving inventory.

Example: COGS = $50,000 Average inventory = $10,000 $50,000 / $10,000 = 5 turns per year

Higher is better—stale inventory is money sitting on a shelf.

9. Customer Acquisition Cost (CAC)

Formula: CAC = Total Marketing & Sales Spend / Number of New Customers Acquired

Use it when: You want to see if your marketing is worth it.

Example: You spent $5,000 on marketing and got 100 new customers. $5,000 / 100 = $50 CAC

If your average customer spends $40… you’re losing money.

10. Customer Lifetime Value (CLV)

Formula: CLV = Average Purchase Value × Purchase Frequency × Customer Lifespan

Use it when: You want to understand long-term revenue from each customer.

Example: $50 avg. order × 5 purchases/year × 3 years = $750 CLV

Compare CLV to CAC. If your CLV is way higher, keep scaling.

11. Return on Investment (ROI)

Formula: ROI (%) = [(Gain from Investment – Cost of Investment) / Cost of Investment] × 100

Use it when: You want to know if an investment (ads, equipment, consultant) was worth it.

Example: You spent $1,000 on ads and gained $2,500 in sales. ($2,500 - $1,000) / $1,000 × 100 = 150% ROI

Anything over 100% is a good sign.

12. Effective Hourly Rate

Formula: Effective Hourly Rate = Net Profit / Hours Worked

Use it when: You want to make sure you’re not working for less than minimum wage.

Example: $4,000 net profit ÷ 100 hours = $40/hour

If that number’s embarrassing, it’s time to raise your prices or cut back wasted time.

Don’t Let the Business Math Intimidate You—Use It to Level Up

Most small business owners don’t fail because their idea sucks. They fail because they didn’t understand the math behind their decisions.

You can’t fix what you don’t measure. You can’t grow what you don’t track. And you damn sure can’t scale if you don’t know whether your pricing or operations are actually profitable.

These formulas aren’t just numbers—they’re business survival tools.