Revenue and profit have a close relationship: one shows all the money brought into the business, while the other shows what money you have leftover after you’ve paid all your expenses.
You start a business, and people love what you’re selling. Money comes rolling in. Congratulations! One important question, though: Is that money revenue or profit?
If you want to keep your winning streak going, this matters. In fact, understanding the difference between revenue vs. profit is key to whether your business thrives or dives.
| Revenue | Profit | |
|---|---|---|
| Definition | All the money brought into the business | What is left after you’ve paid all your expenses |
| Formula | Total sales added together | Revenue - expenses = profit |
| Example | If you sell 10 products at $30, your revenue is $300 | $300 - $200 (expenses) = $100 profit |
| Also called | Sales, top line, earnings | Net income, bottom line, gross profit, return, net |
Revenue is the income generated by selling your products or services before you start subtracting expenses. It’s sometimes called ‘top line’ because you’ll find it at the top of your income statement.
Depending on your business, you might track different types of revenue. Here are some of the most common categories.
Gross revenue: Your total sales, accounting for all income generated from customers, before any discounts or refunds are applied.
Net revenue: Sometimes called net sales, this is your gross revenue minus any discounts, returns, or refunds.
Non-operating revenue: Income that comes from sources outside your day-to-day business activities. This could include rental income, interest, or investment returns.
Average revenue per unit (ARPU): The metric used to understand the average revenue generated per unit sold. (The meaning of ‘unit’ will vary depending on the business.)
Monthly recurring revenue (MRR): This metric focuses on the predictable, recurring revenue a business generates every month.
Annual Recurring Revenue (ARR): Like MRR, ARR is revenue your business generates every year. This would be applicable if your business offers a membership subscription that collects an annual fee.
You’ll notice that expenses have still not been accounted for yet. All of these revenue categories represent the income you’ve created via sales. Let’s go a step further and break down how to calculate each type of revenue.
Sales Cloud brings your data into one place, helping you track revenue and understand your profitability at a glance.
Depending on your business model, there are a few ways you can calculate your revenue. The most common are as follows.
Understanding each type of revenue and keeping a consistent record will help you understand how healthy your business is and if you are utilising your resources correctly.
Revenue is shaped by a mix of internal strategy and external factors. Here are some of the key things that can drive (or limit) your revenue growth.
Now that we’ve covered the ins and outs of revenue, let's look at profit.
Profit is the money a business has left over after all expenses are subtracted from revenue. Gross and net profits are located at the bottom of an income statement. So, when you hear someone say, “What’s your bottom line?”, they are asking what profit your business made.
Even with high revenue, if your direct costs are close to or higher than what you're bringing in, you could end up with little or no profit.
There are two types of profit: gross profit and net profit. Both are tied to the calculations of your revenue.
Gross profit: The money you have left over after you deduct the cost spent to provide your product or service.
Net profit (operating profit): What you get when you take your gross profit and subtract all fixed and variable expenses, such as employee salaries, utilities, etc.
Now let’s look at how to calculate those two main profit types.
Once you have all your revenue and costs, you can calculate both your gross and net profit using the following calculations.
Net profit is an important metric for business health because it tells you how much money you keep after all operational costs are covered.
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Your profit stems from your revenue. All the factors impacting your revenue that were shared above will also impact your profit. The following particulars directly impact profit.
Revenue is the total amount your business earns before costs. Profit is what’s left after subtracting all operational costs. Here are some other differences between revenue vs. profit and why they matter.
An obvious difference is their location on your income statement: revenue at the top, and profit at the bottom.
The placement reflects the logical flow of business activities. You want to see how much money you made from your sales (revenue). Then, you subtract the expenses it takes to keep your business afloat to determine your profit.
Revenue helps sales teams forecast the supply of goods they need to meet future demand. Without a clear understanding of revenue trends, it’s difficult to predict how many new buyers you’ll need to attract in the coming months.
Underestimating demand could lead to a frustrating scenario where potential customers are eager to sign up or buy your product, but you don’t have the stock or can’t onboard them due to insufficient customer support staff.
Overestimating demand isn’t great, either. You might invest heavily in additional stock and hire a larger support team, only to find you have excess products or capacity that isn’t being utilised.
Sales professionals use a revenue intelligence platform to help track trends and compare data period over period, so they lower their risk of overspending or coming up short.
Explore the latest research on how leading companies use AI and automation to boost productivity and improve their financial performance.
Let’s see how the dynamics of revenue and profit play out with a simplified income statement for a local cafe in downtown Sydney.
After a bustling work week, this local cafe brings in $3,400 from coffee sales and $6,300 from cabinet food.
Total revenue: $9,700.
The cost of goods sold (COGS) will include the cost of coffee beans, milk, flavour shots, and the cost of buying pastries from another local provider.
For this coffee shop, the COGS is $1,500.
To find the gross profit, the cafe needs to subtract the total COGS from the total revenue.
Gross profit: $9,700 (revenue) - $1,500 (COGS) = $8,200.
Now, to find the final profit that this cafe made, we’d need to subtract the operating expenses, which for this cafe are:
All of these operating expenses add up to $3,000.
We can now work out the net profit by subtracting the operating expenses from the gross profit.
Net profit: $8,200 (gross profit) - $3,000 (expenses) = $5,200.
You can even take it a step further and calculate the net profit margin with the following formula.
Net profit margin: (Net profit ÷ Revenue) × 100 = 53.6%
The relationship between revenue and profit is unique to each business. Revenue is the thrust to beat the drag when flying. Profit creates the lift to overcome gravity and keep you airborne.
When you’re able to understand your revenue and profit, you’re able to make informed business decisions. To get an accurate view of your revenue and profit, you’ll need to have a unified view of all your sales data. That’s where Commerce Cloud can help.
Customers who started using Commerce Cloud saw a 29% increase in digital revenue by shifting from legacy channels. Watch the demo to learn more.
Gross sales are your full sales total before any deductions. Net sales subtract things like discounts, accrued revenue, and refunds.
ARR is the yearly version of monthly recurring revenue (MRR). It’s a key growth metric for SaaS companies and helps with forecasting revenue and securing funding.
Not exactly. Revenue is the total from all your sales. Total income might also include non-operating revenue, like investments.
Too many hires can inflate costs. Smart headcount planning helps maintain financial health and keeps your company’s financial performance strong.
Calculating revenue vs. profit means knowing how much money you are bringing in and what your take-home is. This helps you track your company’s profitability, spot issues like net loss, and get a clearer picture of your financial health. You can then use this data to make informed investments while running your business.
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