Revenue vs. Profit: What's the Difference?

Introduction

You might hear that a company made billions of dollars in sales, but that does not mean it made billions in profit. Revenue and profit are two of the most important words in business, and mixing them up is a common mistake.

What Is Revenue?

Revenue is the total amount of money a business brings in from selling its products or services. If a lemonade stand sells 100 cups at $2 each, its revenue is $200. Revenue is sometimes called the top line because it appears at the top of a company's income statement.

What Is Profit?

Profit is what is left after subtracting all expenses from revenue. If the lemonade stand spent $60 on lemons, sugar, and cups, its profit is $140. Companies track several kinds of profit. Gross profit subtracts the direct cost of making products. Net profit, or the bottom line, subtracts every expense, including salaries, rent, interest, and taxes.

Why the Difference Matters

A company can have huge revenue and still lose money if its costs are too high. Many fast-growing startups have rising revenue but no profit for years. Investors look at profit margins, which show how much profit a company keeps from each dollar of revenue, to judge how efficient a business is.

Conclusion

Revenue shows how much a business sells, but profit shows how much it actually keeps. Knowing the difference helps you understand business news and think like an entrepreneur!