Have you ever thought about your business revenue and profit? Which one do you consider to understand whether you have a profitable business or not? If we imagine the revenue as a superset, the profit is a subset. If your company does not make any revenue, there will be no earning profit, too. To distinguish revenue and profit, first, you have to understand how the income statement works. Continue reading to learn more about revenue, profit, and the difference between revenue and profit.
What is Revenue in Business?
To understand the difference between profit and revenue, you have to know revenue first. Revenue means the total money you achieve by your business activities as a company or so on. You can calculate your revenue in different ways based on the accounting method you would choose.
Revenue is the top line as it occurs first on a company’s income report. If a company’s top-line grows, it means the company is selling more products or services. The main purpose of all businesses is to increase their revenue and cut the expenses to create the maximum profit.
Totally, the revenue includes two important parts of the sales price and the number of units sold. If you do not know how to calculate your business revenue, you can use the below formula:
Revenue = average price of product x number of units sold
If you are running a business to sell a service instead of a product or products, use this formula:
Revenue = average price of service x number of customers
There are two different types of revenues: operating revenues and non-operating.
Operating revenue is a company’s core business operations where a company makes most of the income. There are different examples of operating revenue such as sales, rents, consulting services, and so on. But the non-operating revenue is the money you earn from activities apart from your company’s core business operations, such as interest revenue or sale of an asset or equipment.
What is Profit in Business?
The next item that you have to learn before exactly understanding what is the difference between revenue and profit is the net worth, generally known as profit. Profit is the main important concept for all businesses, especially if you have a start-up or relatively new business. Profit refers to the term of financial return or reward that a businessman wants to achieve, which relates to the taken risk.
As you might know, most entrepreneurs who start a business aim to make a return, so the profit earned by a business is an important measure to estimate the success of that investment.
Profit is also an important signal when you want to find a financial provider for your business. For example, banks, suppliers, and other lenders will provide finance to your business if you can show that you make a profit. You can simply measure and calculate your profit with the below formula:
Profit = Total sales- total costs
Differences between revenue and profit (revenue vs profit)
Now, it is time to see what is the difference between profit and revenue. As you previously read, revenue and profit are two strong hands of your company’s economic success. As you need to use both of them to assess your business’ finances accurately, it is important to know their differences. If you put revenue vs profit, the key difference is about the expenses. Consider that your revenue is the income before expenses, but profit is income after expenses. So if you do not have sufficient revenue, it is not possible to make a profit. See the below chart to understand the main differences between profit vs revenue, well.
|Definition||Revenue is the income of any business before expenses.||Profit is the rest of your business income after the expenses.|
|Formula||Quantity x Sale Price = Revenue||Revenue – Expenses = Profit|
|Types||Operating Revenue, Non-Operating Revenue||Gross Profit, Operating Profit, Net Profit|
|Relationship||You can make revenue without any profit.||It is not possible to make a profit without generating sufficient revenue.|
|Where to find||Revenue is the top line of the income statement.||Net profit is the last line of the income statement.|
If you are a business owner and need to consider your financial status carefully, read the above text. There we talked about two important factors in the financial field, revenue, and profit, which will help you manage your monetary section well.