Revenue vs Profit

Revenue vs. Profit: Revenue is the entire amount of money earned through the selling goods or services linked to the principal operations of the business. Profit, also known as net profit or bottom line, is the revenue remaining after all expenses, debts, other revenue streams, and overheads are deducted.

What Is The Difference Between Revenue And Profit?

  • Revenue is the entire amount of income produced by the sale of goods or services associated with the principal operations of the business.

  • Income, also referred to as “sales,” excludes all costs and expenses connected with running the business.

  • Profit is the remaining revenue after all expenses, debts, other revenue streams, and operational expenditures have been deducted.

  • While sales and profits both relate to the amount of money a business earns, a business might produce revenue whilst also incurring a net loss.

Revenue vs. Profit:

Profit Revenue
Definition Profit is your business’ remaining income after expenses. Revenue is your business’ income before expenses.
Formula Revenue – Expenses = Profit Quantity x Sale Price = Revenue
Types Gross Profit, Operating Profit, Net Profit Operating Revenue, Non-Operating Revenue
Relationship You cannot generate profit without first generating sufficient revenue. You can generate revenue without profit.
Where to find Net profit is generally the last line on the income statement. Revenue is found at the top of the income statement.

What is Profit?

  • On the financial statements, profit is known as net income. However, the majority of people refer to it as the bottom line. On the financial statements, there really are variations of profitability that are used to analyse a firm’s productivity.

  • However, additional profitability exist between the upper (revenue) and shareholder profits (net profit). Profit, for example, may be used in conjunction with gross makes a profit profit. These are the processes necessary to achieve net profit.

  • Total revenue is income less cost of sales (COGS), which seem to be the real costs of manufacturing the commodities sold by a business. This figure comprises the value of the resources used to create a business’s products as well as the direct labour costs associated with their production.

  • Operating profit is defined as gross profit less all additional fixed and variable costs connected with operating the firm, such as rent, utilities, and wages.

What is Revenue?

  • Because revenue is situated at the top of a net income, it is repeatedly alluded to this as the top line. The revenue figure represents the income generated by a business before expenses are deducted.

  • For instance, the revenue of a shoe store is the money earned from shoe sales before any expenses are deducted. Income from assets or a subsidiary is not recognized revenue if the corporation also earns income from such sources.

  • That is because it is not derived from shoe sales. Additional streams of income and various sorts of expenditures are individually accounted for.

Key Differences

  • When most people refer to a company’s profit, they are not referring to gross or operating profit, but rather net income. This is what’s left over after expenses or the net profit.

  • Keep in mind that it is possible for a company to generate revenue but have a net loss at the same time.

  • Let’s take a look at J.C. Penney’s numbers for 2017, reported on the company’s 10-K annual statement, closing on Feb. 03, 2018.

  • The company suffered a loss on the bottom line of $116 million, despite earning $12.5 billion in revenue. Losses typically occur when debts or expenses outstrip earnings, as in the case of J.C. Penney.

Example of Revenue vs. Profit

The following are the data and income statement for James Johnson that were discussed previously.

  • Income or Net Total Sales: $12.50 billion * Gross Margin: $4.33 million (operating income of $12.50 billion minus cost of goods sold of $8.17 billion)
  • Profitability: $116 billion
  • Profit or profit or gross income: –116 million dollars (a loss)


Revenue is the entire amount of money earned through the selling goods or services connected to the principal operations of the business. Revenue, sometimes known as total profits, is regularly alluded to as the “power play” of the net income due to its location at the top. Revenue, or net income, is a term that refers to a business’s overall earnings or profit. When analysts and investors refer to a statement of income, they are referring to the company’s net income, or profit.

What is the Formula for Revenue?

  • It’s really simple to calculate revenue. Simply enter the following equation to determine your business’s revenue:

  • Revenue = Quantity x Sale Price

  • Consider the following example:

  • If you run a bakery and sell 100 loaves of bread for $5 each month, you will earn $500 from selling bread.

  • Revenue is sometimes referred to as a company’s top line by others. Why? Due to the fact that revenue is often mentioned first on an income statement.

What is the Formula for Profit?

  • Use the following calculation to determine your profit:

  • Profit = Revenue – Expenses

  • To begin, consider the preceding example wherein you earned $500 in total sales:

  • Assume that your monthly expenses totaled $400 (How much do jockeys make?) between materials, rent, and salary. In this situation, your monthly profit would be only $100, despite the fact that you purchased $500 worth of merchandise.

  • Revenue is a subcategory of profit. As a result, you must earn enough revenue to cover your expenses and yet still make profit.

The Basics of Sales Revenue and Profit:

  • The term “sales revenue” is frequently used interchangeably with “revenue” to refer to the total amount of revenue generated by a firm via the sale of its goods or services.

  • Sales income can be further split down to show the receipts and billings associated with the sale of products or services (gross sales revenue) as well as the subtraction of returns and allowances from gross sales revenue (the net sales revenue).

  • While the terms “sales revenue” and “revenue” are frequently used interchangeably, not all income is generated by sales.

  • Other revenue streams, such as interest earned on credit sales, might be added as a distinct line item to sales revenue when calculating total revenues.

  • Profit is the difference between a business’s’s revenues and total costs, and is frequently referred to as the bottom line. More precisely, profit is the balance of income remaining after all expenses, charges, and taxes have been deducted.

  • Whereas sales revenue is measured solely on the basis of the income generated by a business through the sale of its goods or services, profit is calculated on the basis of both income and expenses.

  • Profit is further subdivided into gross profit (sales minus the cost of goods sold), operational profit (gross profit minus operating expenditures), and net profit (remaining income after all expenses have been paid).

Revenue and Profit Calculations:

  • To calculate revenue from sales, multiply the total cost of goods sold or service by the total quantity of items or services sold.

  • For example, if a farm sells 200 apples at a cost of $2 apiece, the farm’s net income is $400. If it also sells 100 lemons at a price of $2.5 each, the overall sales will be $700.

  • Profitability is calculated by subtracting total costs from total revenues. In the farm example, if each apple costs $1 to nurture and pluck, and each lemon cost $2, as well as the farm produces 200 fruit and 100 lemons, the overall cost is $400.

  • Remove this figure from the $700 overall sales rate at profit – $300. The orchard earned $200 from apple and $100 from lemon sales.

Why Total Sales and Profitability Are Important:

  • Businesses and investors are extremely concerned with total sales and profit because they provide insight into a business’s overall health.

  • Profitability indicates the amount of value captured by a firm through the price and cost of its items, whereas sales income indicates the amount demanded at a certain price. Profitability is determined by both profit and sales income.

How to Calculate Profits as a Proportion of Gross Income:

  • Gross margin mathematically reflects the portion of sales that remain after deducting operating expenses from your firm.

  • This critical parameter indicates a firm’s financial health, with higher profit margins indicating more robust finances and profitable profits.

  • Typically, profits are calculated using net income, but they can be calculated using gross income if no loss from refunds or reductions are anticipated.

Profitability Statement

  • An income statement is used to gather critical information about a business’s financial position. This statement includes information on revenue, sales, losses, depreciation, and operational expenses.

  • This statement may also include information on taxes and a earnings-per-share that indicates how so much money is delivered to shareholders for each share those who own. Profit margins are calculated using information from the financial statements.


  • Gross receipts or income is the sum of all money received through sales and services. It excludes anticipated losses, including such product returns or given discounts.

  • After subtracting these losses, the final sum is referred to as net revenue, which is frequently used to calculate profitability.

  • If such loses are not anticipated or are impossible to estimate, gross income can be used instead.

Profitable Gross

  • After deducting cost of sales from gross revenue, what remains is gross profit. This statistic does not include operating expenses, but rather shows how much revenue remains after such costs are paid.

  • This dollar value may be meaningless on its own, as it provides no indication of revenue or costs of sales, merely the gap between the two.

  • As a result, gross profit margin is calculated to depict the relationship between revenue and costs.

Margin of Gross Profit

  • The net profit margin is a percentage or proportion of revenue to sales. This gross margin is calculated by dividing gross profit by gross income.

  • For instance, if your company earned $20,000 in income and had $15,000 in selling expenses, deducting $15,000 from $20,000 results in a gross profit of $5,000.

  • Reducing $5,000 by $20,000 yields a gross profit margin of 0.25. To convert this value to a percentage, multiply by 100. As a result, the gross profit is 25%.

Calculating Sales Margin:

  • The sales gap is a critical metric that indicates the profitability of each item sold by your business. You can determine the sales margin for a single transaction, a group of transactions, or all transactions over a particular time period.

  • The sales margin indicates how much of each dollar of revenue is retained by the business as gross profit after deducting the cost of the things sold. By examining your sales margins, you may ascertain which products are the most profitable.

  • However, one limitation of sales margin is that it does not account for other business costs, such as sales charges and overhead.

  • To establish how much of each dollar the company retains after all expenses are deducted, the net profit margin must be calculated.

  • Calculate the revenue generated by each sale in your set of data. For instance, if you’re calculating the margin on a single unit of toothbrush, use the sales price. If you wish to determine the margins for all sales made during the year, sum the prices of each sale to arrive at the year’s total income.

  • Determine the total cost of the item(s) you’re selling. The price of retail goods is comprised of the purchase price plus any applicable delivery charges. If you are a manufacturer, the price covers not just the raw materials, but also the labour required to construct the finished product.

  • For instance, if you construct chairs and the wood costs $20 and two hours of work at a rate of $25 per hour, the chair will cost you $70. When determining the profit margin on a single item, utilise the total cost of production.

  • Alternatively, if you really want to determine your annual sales margin, use your total cost of sales.

  • Profit is calculated by subtracting the costs sold from total revenue. For instance, if you sell a pipe of toothpaste for $3 and it ends up costing you $1.20 to purchase it, deduct $1.20 from $3 to determine the company’s gross profit per tube is $1.80.

  • In the aggregate, if the company earns $600,000 in sales revenue and $370,000 in cost of goods sold, the financial gain is $270,000.

  • Calculate the profit rate as a numeral by dividing total profit by total revenue. Divide the profit of $1.80 by the income of $3 in the toothpaste example to obtain a sales margin of 0.6. Alternatively, split $270,000 by $600,000 to obtain a 0.45 annual gross profit margin.

  • To convert sales margins to percentages, multiply them by 100. These percentages indicate the portion of each sale that is profitable.

  • To conclude the instances, multiply 0.6 by 100 to determine the toothpaste’s sales margin is 60%. Magnify 0.45 by 100 to obtain the company’s overall sales margin of 45 percent.

Net Profit Margin

  • Compute the firm’s revenue expenses. These include not just the expenses of the products sold, as well as the costs of leasing a facility, utilities, transaction fees, interest on loans, income taxes and all other charges to run the business.

  • Simply subtract costs from the firm’s gross revenues and find the statement of income. For instance, if the business has $1 million in sales and time and resources more efficiently in overall costs, the corporation has a net income of $140,000.

  • Split the net income by the entire revenues to calculate the profit rate. In this example, reduce $100 k by $1 million to get 0.28, implying the company has a profit margin of 14 per cent.


To determine the overall profitability of a single product or service, first figure out the gross profit per item sold. Then allocate a portion of your overhead costs as an additional expense against the profit per item to calculate the true profitability of the item. Be sure to include the time of customer service agents and technicians who provide ongoing support for your products.


Several methods can be used to determine a company’s operating profit. One is to analyze profit margins. Another is to examine profit trends over several quarters or from year to year.

Frequently Asked Questions(FAQs):

People ask many questions about Revenue and profit. We discussed a few of them below.

1. Is profit more essential than revenue?

  • There really are times in company when revenue is more crucial than profit. While profitability is critical in defining a company’s worth, sales are as critical, and sometimes more so, in establishing a company’s value.

2. Is it more important to grow revenue or profit?

  • Revenue growth might result in increased costs and decreased profit margins. Cost cutting can result in decreased sales and profit margins over time if market share is lost.

  • Emphasis on brand & quality can help to maintain higher sales prices and profit margins over time.

3. Is revenue synonymous with gross profit?

  • Gross profit margins profit are two essential profitability parameters for any business. Gross profit is the remaining income or profit after production costs are deducted from revenue.

  • Revenue is the total amount of money earned by a business from the selling of its goods and services.

4.What percentage of revenue is financial gain?

  • For instance, suppose you purchase products for $8,000 and sell those for $10,000. Your profit margin is $2,000 on a gross basis.

  • Calculate your gross margin by dividing this value by total revenue: 0.2. Multiply this value by 100 to obtain the percentage of gross profit margin: 20%.

5. Is net sales synonymous with revenue?

  • Net sales are calculated by subtracting appropriate sales refunds, rebates, and discounts from gross income.

  • While the costs connected with net revenue will affect a business’s net profit or profit margin, net sales exclude the cost of goods sold, which is typically the primary source of gross profit percentage.

6. Which is more essential, revenue or net income?

  • Net profit is the ultimate goal of any for-profit business in the long run. Net profit is the amount remaining after all types of revenue and acknowledged costs of just doing business have been deducted.

  • However, operational cash flow is frequently seen as a more accurate long-term indicator of a business’s financial health.

7. How long could a business operate profitably?

  • Half of small firms have barely enough cash on hand to go 27 days without revenue. Half of small firms have only enough cash on hand to last 27 days.

8. Why do businesses require revenue?

  • Economic Motor. The most fundamental argument concerning revenue’s importance is that even with it, your business cannot generate a profit or be profitable in the long term.

  • You must generate money in order to justify both fixed and variable costs associated with running a firm.

9. Will decreasing your prices result in an increase in profits?

  • While your costs remain constant, decreasing pricing to increase sales reduces your profit margin on each unit sold.

  • On the other side, lower pricing frequently result in increased sales volumes, which can compensate for the decreased profit margin.

10. Can a business exist without profit?

  • No firm can continue for an extended period of time without earning a profit, but determining a company’s financial performance, both existing and expected, is crucial for evaluation.

  • While funding can help a business survive in the long term for a time, it is eventually a liability, not really an asset.


While revenue and profit are frequently regarded synonymous, profit is essentially a subset of revenue. And profitability is a good predictor of a business’s financial health. When a business begins operations, it may earn income but rarely profits due to the hefty startup costs. After some years of operation, an organization can reach even and then profit. Both are direct markers of a business’s direction.

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