As a business owner, it is crucial to understand the difference between the concepts of revenue and profit. Keep reading for our short guide on what each concept means, how they differ, and an example of 'revenue vs profit’.
What is Revenue?
Revenue describes the income your business generates before any expenses are subtracted. It is the amount earned through goods or services related to the company's primary operations. Revenue is also referred to as a company's top line (because it appears on the top of your income statement).
What is Profit?
Profit, on the other hand, refers to your business's income after expenses. These expenses include anything from inventory costs to taxes and many other expenses. Profit is the financial gain of a business. Profit is also referred to as a company's bottom line.
The formula to calculate profit is as follows: Profit = Revenue – Expenses.
What is the difference between revenue and profit?
- Revenue = your business's income before expenses are subtracted
- Profit = your business's income after expenses have been subtracted
- The formula to calculate revenue is as follows: Revenue = Quantity x Sale Price
- The formula to calculate profit is as follows: Profit = Revenue – Expenses
- Revenue: 1. Operating revenue (revenue your business generates from its primary business activities) 2. Non-operating revenue (the portion of your business's income derived from activities not related to its core business operations)
- Profit: 1. Gross profit (the profit your company makes once all the costs related to manufacturing and selling your products or services have been subtracted) 2. Operating profit (profits earned by your business from its core operations/ operating income) 3. Net Profit (amount of money your business earns over a given period after all operating, interest, and tax expenses of time have been deducted)
- Revenue: You can generate revenue without profit
- Profit: You cannot generate profit without first generating sufficient revenue
Where are they located on the income statement?
- Revenue: At the top
- Profit: At the bottom
Revenue vs Profit Example
Company X repairs cars. It offers the following services:
- Oil changes: GPB 50
- Tuning: GPB 100
- Brake Repair: GPB 120
Within a specified period, Company X sells 20 oil changes, 10 tunings, and five brake repairs.
Applying the formula for revenue, the calculation is as follows: Revenue = (50x20) + (100x10) + (120x5) = GPB 2,600.
Company X's expenses over the specified period amount to GPB GPB 1,800, which includes salaries, electricity, and all the materials. Applying the formula for profit, the calculation is as follows: Profit = 2,600 - 1,800 = GPB 800.
Company X's net profit within the specified period amounts to GPB 800.
Revenue vs. sales
While revenue sometimes is referred to as sales, there is a difference between the concepts - revenue is the income your business generates before any expenses are subtracted, sales, however, refers to what your business earns from selling products or services.
Revenue vs Profit FAQs
- Is total revenue the same as gross profit?
Gross revenue is the company's total revenue made from selling goods or services without deducting any costs or losses. Gross profit, however, is the gross revenue minus what it cost to provide or produce the goods or services.
- Are earnings profit or revenue?
Revenue is the income a company generates before deducting expenses, while earnings are the profit a company has earned after subtracting expenses, interest, and taxes.
- Can profit be higher than revenue?
Profit is lower than revenue because expenses and liabilities are deducted.
- Are businesses taxed on revenue or profit?
Businesses are taxed on their profits. Corporate taxes are paid on a business's taxable income, which includes revenue minus cost of goods sold (COGS), general and administrative (G&A) expenses, selling and marketing, research and development, depreciation, and other operating costs.
- Is revenue more important than profit?
Companies with high revenue are usually valued higher than those with simply high profits. Profit is realized when a business receives the cash from the revenue. So, cash is dependent on revenue, however, profit is dependent on cash and revenue.
- How much revenue is profit?
While a good profit margin will depend largely on the industry, a 10% net profit margin is considered average.
- Is revenue the same as sales?
Revenue is the entire income generated from core operations before expenses are subtracted. Sales, on the other hand, is the capital a company generates just from selling goods or services.