Profit vs Revenue
Profit and revenue are two very important concepts that anyone desirous of doing business must understand beforehand. Profit is always financial benefit while revenue is the amount of money generated through business activities before expenditures are subtracted to arrive at profit figure. While there is always revenue involved in a business (through the sale of products and services), it is not necessary for a business to report profits as it is possible to make losses also. This article attempts to highlight the differences between profit and revenue to remove all doubts that many seem to have in their minds.
Even a fruit vendor on the roadside knows what profit is. It is the amount of money that is left with him after he takes into account all his expenses. Suppose he buys fruits spending $50 and sells them all for $75, he can assume to have made a net profit of $25 in a day if we are to discount his physical labor. The same cannot be said about online shopping site that is a giant shopping site today. But despite having been founded in 1994, the company had to wait for 9 years before it posted a profit. All along, it generated revenues that were increasing all the time but made no profits. New businesses, because of lots of one time investments at startup, do not register profit in the initial years though they become profitable in the long run. On the other hand, smaller the scale of business, sooner it can become profitable.
Thus, revenue is income before expenditure is taken into account and includes money generated through sales of goods and services. Revenue includes all money that comes into a business while profit is calculated after taking into account all expenses such as salary of employees, utility bills, rentals, insurance premiums, cost of raw materials, and so on. Profit in a large company is meant not just for the owners, but also the shareholders who may decide to put it back into the business to improve upon sales.
What is the difference between revenue and profit?
• Profit and revenue are two concepts that are intricately linked with any business.
• Profits are benefits that arise out of business activities while revenues are total money generated through the sale of goods and services.
• Profit = Revenue – expense
• To arrive at profit, one has to subtract all expenses, such as salary of employees, cost of raw material, electricity bill, rentals, insurance and similar other expenses, from the revenue.