Difference Between Revenue vs Profit

Difference Between Revenue vs Profit

When you are a businessperson, you are going to have to deal with a bunch of challenges. Having the right knowledge, skills, and practices can help you tackle these challenges better. That is why it is crucial to keep expanding one’s circle and learning all the time. It is also critical to have a fundamental education to help you understand things like the difference between revenue and profit.

In this piece, we will focus on the difference between these two terms and how they are related to each other. This will expose the reason why a lot of people use them interchangeably as well as the reasons why they should not be used in such a manner.

Definition of Revenue

Revenue is defined as an amount of money recovered by a business corporation over the course of some business activities without making any deductions. In other words, it is the total amount of money a business makes at the end of each business transaction.

There are two different types of revenue, and they include:

  • Operating

This is the primary income received from the principal functions of a business corporation. It is what every business owner has their focus on and it is the main avenue for cash flow into a business. An example is money paid for medical services, money generated from sales of merchandise, etc.

  • Non-operating

This type of income is received from delivering goods and services that are not the primary or central operations of a business. A good example is the disposal of a piece of outdated equipment for cash, gains made from the settlement of a lawsuit, etc.

In understanding the difference between profit and revenue, you need to identify what income is categorized as operational and what is categorized as non-operational.

Definition of Profit

Profit is defined as the remaining amount of money after subtracting all expenses from the revenue. This term is a subset of the other because, without the former, there would be no yield. From another perspective, this term can also be defined as a reward for a risk taken by a business owner at the end of a business transaction and expenses.

To properly answer the question what is the difference between revenue and profit, you should understand the types there are. For the sake of this post, we will be looking at two types:

  • Gross

This is mathematically expressed as “sales minus goods sold.” It is money that you realize from a business transaction after deducting the cost associated with production and sales as it has to do with a product or the cost of rendering a particular service.

  • Net

This is the leftover yield after all expenses have been deducted from the gross balance. Examples of such expenses include taxes and interests. Mathematically, it is expressed as “Profit minus tax and interest.”

A business can be said to be profitable or not depending on the gross and net profit of the business. Having this in the back of your mind would help you keep a great financial record that can help you strategize and implement effective decisions as well as help with monitoring the growth of the establishment.

Main Differences Between Revenue vs Profit

How can we make it more comprehensive and simpler for you to answer the question what is the difference between profit and revenue? We have selected the main differences between these two as shown in the table below.

Basis of Comparison Revenue Profit
DefinitionThe amount of money recovered by a business corporation over the course of some business activities without making any deductions The remaining amount of money after subtracting all expenses from the revenue
EquationRevenue = Number of units sold * Unit selling priceProfit = Revenue – Expenses
TypesOperating and non-operatingGross and net
DependencyDoes not depend on profitDepends on profit
Where it can be found At the top of an income statementAt the bottom of an income statement

Difference Between Revenue and Profit: Conclusion

At this point, it is clear how these two terms are closely related but are not the same and should not be used interchangeably. Understanding how revenue vs profit compare to each other can help you build a better business as it has to do with implementing effective business practices and budgeting.

Here are some key factors to take away from this piece.

  • Profit is dependent on revenue. Therefore, growing the former would increase the latter
  • Having clear records of these two functions would help you understand the run your business better
  • A good financial record helps with better decision making, improved work conditions, and adds to the safety of the business