What are the Differences Between Revenue and Profit

When we talk about a business, especially about its success, the most common terms that surface are Revenue and Profit. At first, these terms might sound like they carry the same meaning as they both are related to the money that a business makes. However, these words carry a difference and tell separate stories about a company’s financial health. 

Understanding the difference between revenue and profit is quite important because it helps business owners, investors and customers to get a better view of the performance of a business. Here is a clear difference between these two financial terms to help understand how they impact the business. 

What is Revenue?

Revenue is the total money that a business brings in by selling the product or services before any expenses are subtracted from it. The revenue is often also called “top line” as it appears at the very top of a business’ income statement. 

The PNC bank mentions: “Revenue, often called total revenue or the “top line,” is the total money your business earns from selling products or services before any costs are subtracted. Think of it as all the money flowing into your business.”

Here is an example of Revenue:

If a bakery in the neighbourhood sells 500 cakes in the month valued at 300 rupees each then the revenue for the bakery would be: 

500 multiplied by 300 = 1,50,000

This is the total amount that the bakery has earned from its sales, and now expenditure is deducted from this amount. 

Revenue is generated from different sources depending on the nature of the business. 

What is Profit?

Profit is the amount of money that a business actually keeps for itself after it has cleared all its expenses. This can include different costs such as raw materials, salaries, rent, bills, taxes and various other components. Profit is also known as the “bottom line” as it shows up at the end of the income statement. 

The PNC Bank mentions: “If you earn more than you spend, you make a profit. If your costs exceed what you bring in, you operate at a loss. Profit is essential because it allows you to grow, invest in new opportunities, and keep your business running successfully.”

Using the example of the bakery from the above, here is how profit looks like:

• Revenue for the bakery was 1,50,000 

• Some common expenses for a bakery might include: flour, sugar, rent, electricity. These costs upto 1,00,000

Therefore the profit will be Revenue minus the Expenses. Which means: 

1,50,000 - 1,00,000 = 50,000

So, the money that a business has actually earned is 50,000 rupees. 

What are the Key Differences Between Revenue and Profit?

In conclusion, both revenue and profit are quite important for a business to survive. While revenue calculates the money generated by the business, profit shows if the business is working in good health or not.