What is the difference between revenue and profit

What is Revenue? You calculate revenue by multiplying the price of your product by the number of units sold. Revenue is referred to as the top line because it shows up at the top of your income statement. What is Profit? Profit is the amount of income left after deducting expenses from your revenue. To calculate profit, subtract your expenses from revenue. However, there are two other types of profit as well: Gross profit : Your income after deducting the cost of goods sold COGS.

COGS include all the expenses involved with producing your product or service like manufacturing costs, inventory, or hosting costs for software companies. How Revenue Affects Profit The higher your revenue, the more potential that you have for profit.

Increase Your Margins Start by focusing on your gross profit. Operate More Efficiently Another way to increase your profit is to optimize your operating profit. Here are a few examples: Payroll: Payroll is typically the largest expense for early stage startups. Layoffs and pay cuts should be a last resort if possible. Some other options are doing a hiring freeze, or reducing certain benefits. Marketing: Look for opportunities to either cut underperforming marketing channels or lower your customer acquisition cost for the better performing channels.

Office expenses: Since the pandemic, more companies have gone remote which has eliminated certain expenses like rent and amenities like free lunch. Take a look at our article on how to extend your runway for more tips. Net profit, or net income, is what remains after adding in your non-operating revenue and subtracting your non-operating costs.

The interest earned from a business money market or investment account is non-operating revenue. Extraordinary transactions, such as selling old factory equipment, are considered non-operating revenue.

If you borrow money to buy business assets, the interest expense is a non-operating cost. The amount of income tax your business pays is also deducted from the operating profit. Net profit is the amount of cash your business earned after all costs and expenses are paid. By Chron Contributor Updated September 21, Related Articles. And profit is an indicator that a company is financially healthy. When a business starts its operations, it may generate revenue, but rarely it makes profits since the upfront costs are quite high.

After a few years of operations, an organization can break even and go beyond the break-even point to enjoy the profit. This has been a guide to Revenue vs. Here we discuss the top differences between them along with infographics and comparison table. You may also have a look at the following articles for gaining further knowledge in Accounting —. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment.

Revenue and Profit are terms often used interchangeably however they are different and are calculated in a different way before being shown in the books of accounts. Below is a trading account showing red highlighted Revenue of a business. Sales — Returns. Profit is what is left after the deduction of all expenses from revenue. Profits can be calculated at various levels e. Gross Profit, Net Profit etc.