Profit vs Revenue: All The Differences Explained
- Gross profit: Revenue less the cost of goods sold (COGS) will arrive at gross profit. Although the COGS differ by industry, they all have the same basic structure: They are the expenses directly related to sales. The gross margin of your business provides you a decent notion of how much you may mark up the products or services in comparison to the costs you pay to suppliers.
- Operating profit: Operating profit is calculated by taking gross profit minus expenses. Rent, salaries, insurance, and other essential operational costs fall under the category of operating expenses. You can see how much money your core business is making by analyzing your operating profit.
- Net profit: Net profit is the amount that remains after all other costs have been paid. This includes one-time fees (legal settlements), taxes, and interest costs. These costs can differ significantly from year to year.
- If your business sees rising marketing expenses or ad spends, your profit may go down. Specifically, when you are spending too much money on promoting your products to have more sales, but the results are not desirable. That means what you earned is less than what you paid for, which leads to a loss in profit.
- Companies frequently focus on operating costs, which are the costs incurred to operate their businesses. Without having to sell more products, you can lift up your profit by reducing operating costs and expenses. You can find several operating costs that PepsiCo has spent to run and grow their business, extracted from their
- You should also be conscious of net profit by taking taxes and interest into account. Companies must use careful planning and put legal avoidance measures into place to avoid taxes. If your business can keep both in place, it will lower both of its costs and ultimately boost profit.
- Gross revenue: It represents the total of all business revenues. Gross revenue of a manufacturing business would include all goods sold, regardless of the cost to make them. Gross revenue of a non-profit organization would include all income raised through fundraising, gifts, grants, etc. Operating revenue and non-operating revenue, which refers to incidental or supplemental sources of income, are two categories of gross revenue.
- Net revenue (or net sales): It is gross revenue less returns and allowances, such as sale promotions and purchase discounts. In essence, net revenue is the actual sum of money that the business had in its bank account at the end of the reporting period. Net revenue is frequently used by businesses to determine payments to their sales team.
- Your business may see a rise in revenue if its goods or services are in high demand. On the other hand, a decline in demand may result in a drop in your revenue.
- Pricing is an important consideration when deciding your company's revenue. Therefore, you need to be mindful of what you charge. Your company may experience a decline in demand if you set prices too high.
- Your company's revenue may decrease as a result of outside competition. By impacting your company's market share, competition can have an impact on its revenue. As a result, your business may have to reduce its rates if there is a fierce competition or risk losing out on some customers entirely.
- The state of the economy as a whole also affects how much money your company will make. For instance, consumer spending may decline during a recession, leading to lower sales.
- Is profit vs revenue the same?
- Can profit be higher than revenue?
- Are you taxed on revenue or profit?
- How do you calculate profit from revenue?
Irene Le
Content Manager at TrueProfit & eCommerce Marketing Specialist
Irene Le is the Content Manager at TrueProfit, specializing in crafting insightful, data-driven content to help eCommerce merchants scale profitably. With over 5 years of experience in content creation and growth strategy for the eCommerce industry, she is dedicated to producing high-value, actionable content that empowers merchants to make informed financial decisions.
