Profit and revenue are two of the most important metrics in business — but they’re not the same thing. Revenue shows how much money your company brings in, while your profit is how much you actually keep after covering expenses. Understanding both helps you make informed decisions and track your company’s performance.
What is revenue?
Revenue is the money generated from the sale of a company’s products or services. It’s often called the top line because it appears at the top of most income statements. Revenue doesn’t account for expenses or taxes — it’s the total sales a company has.
Depending on the type of business you run, revenue can come from a variety of different sources. Here are the different types of revenue a business can generate:
- Sales revenue: This is the primary income a company earns from selling its products or services.
- Recurring revenue: This is income you expect to receive regularly — service contracts, memberships, and retainers are all examples of recurring revenue.
- Investment income: This refers to any money you receive from dividends, interest payments, or capital gains.
- Other revenue streams: This is any income your business earns that falls outside of your business’s primary revenue stream. It could include things like rental income or asset sales.
Although profit and revenue are closely related, they measure different aspects of a business’s financial health.
What is profit?
Profit is the income that remains after accounting for expenses and taxes. It’s often called the bottom line because it’s the final number presented on an income statement, after subtracting any expenses from the revenue.
There are three main types of profit, and each gives you different insights into your business:
- Gross profit: These are the profits you earn after subtracting the cost of goods sold. It shows how efficiently a business produces its products or services.
- Operating profit: This is also known as the operating income, and it deducts expenses like wages, rent, and utilities from your gross profit.
- Net profit: This is the final number after all your expenses are deducted, and it’s the most comprehensive measure of your company’s profitability.
Key differences
Although profit and revenue are closely related, they measure different aspects of a business’s financial health. Revenue doesn’t account for any expenses — it simply reflects how much income the business has generated before any costs are deducted.
Profit, on the other hand, is what remains after subtracting all expenses, including operating costs, taxes, payroll, and rent, from revenue.
Revenue shows how much money is coming into the business, while profit shows how much is left over. A company can have high revenue but still operate at a loss if its expenses are too high. That’s why both numbers are important — revenue indicates how well the business is generating sales, and profit reveals how effectively it’s managing its costs.
Understanding the difference between revenue and profit is essential for assessing a business’s financial performance and long-term sustainability. One tells you how much you’re making while the other tells you whether it’s enough.
How to calculate
Let’s look at an example to see how profit is calculated. Let’s say your business earns $500,000 in annual revenue. After subtracting expenses like rent, payroll, inventory, marketing, and taxes, your total costs come to $400,000. That leaves you with a net profit of $100,000.
Revenue ($500,000) - Expenses ($400,000) = Profit ($100,000)
But let’s say your expenses were even higher and reached $525,000. In this case, you’d end the year with a loss of $25,000, even though your revenue didn’t change.
Revenue ($500,000) - Expenses ($525,000) = Loss ($25,000)
This example highlights why revenue alone doesn’t tell the full story. A business can bring in plenty of money but still struggle financially if costs aren’t managed effectively.
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