Glossary · Finance
What is Revenue vs. Profit?
Definition
Revenue is the total money your business takes in from sales, while profit is the portion left over after you subtract all of your costs.
Profit = revenue − total costs
Why it matters
Revenue is often called the top line and profit the bottom line. Founders who focus on revenue alone can build a busy business that earns very little.
A custom t-shirt shop might ring up $50,000 in a year. After $22,000 for blanks and printing, $9,000 for shipping and fees, $12,000 for rent and software, and $4,000 for advertising, profit is $3,000, only 6 percent of revenue. A competitor with just $30,000 in sales but lower costs could clear $6,000.
When someone brags about revenue, ask about margin. Healthy businesses care about both, but profit is what you can actually spend or reinvest.
Common mistakes
- !Treating gross sales as personal income.
- !Pursuing low-margin sales that raise revenue but lower profit once costs are counted.
Frequently asked questions
What is Revenue vs. Profit?
Revenue is the total money your business takes in from sales, while profit is the portion left over after you subtract all of your costs.
How do you calculate Revenue vs. Profit?
Profit = revenue − total costs
What mistakes do beginners make with Revenue vs. Profit?
Treating gross sales as personal income. Pursuing low-margin sales that raise revenue but lower profit once costs are counted.
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