Revenue vs Profit: How to Calculate and the Difference

Revenue and profit are two of the most important financial terms in business, but they are often misunderstood or used interchangeably. In reality, they serve very different purposes when it comes to evaluating a company’s performance.

If you're running a business, investing in one, or just trying to make sense of a financial statement, it’s critical to know the difference between revenue and profit, and how each one is calculated.

Key Takeaways

• Revenue is the total amount of money a business brings in from its operations, before any expenses are taken out.
• Profit is the amount left over after all expenses have been subtracted from revenue.
• Understanding both gives a clearer picture of how successful and efficient a business really is.

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What Is Revenue?

Revenue, also called sales or the top line, is the total amount of income generated by the sale of goods or services. It doesn’t factor in any costs or expenses. 

It’s simply the gross earnings a company makes through its operations.

Example: If you sell 1,000 T-shirts at $25 each, your total revenue would be:

1,000 x $25 = $25,000 in revenue

It’s the starting point for understanding how much money is coming into the business.

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What Is Profit?

Profit is what remains after subtracting all expenses from revenue. It reflects the actual financial gain and is often referred to as net income or the bottom line.

There are a few different types of profit:

• Gross profit is calculated by subtracting the cost of goods sold (COGS) from revenue. This shows how efficiently a company is producing or acquiring its products.
• Operating profit subtracts operating expenses (like salaries, rent, and utilities) from gross profit. It shows how profitable a business is from its core operations.
• Net profit subtracts all other expenses, including interest and taxes, from operating profit. This is the final number that reflects how much actual money the company earned.

How to Calculate Each

To calculate revenue:

Multiply the number of units sold by the price per unit.

Revenue = Units Sold × Price per Unit

To calculate net profit:

Subtract total expenses from total revenue.

Net Profit = Revenue – (COGS + Operating Expenses + Taxes + Interest)

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Why Understanding the Difference Matters

Revenue shows how much business a company is doing, but profit shows whether the company is actually making money.

A company can have high revenue but still lose money if expenses are too high. On the other hand, a business with modest revenue and strong cost control can be highly profitable.

If you want to measure growth and market demand, look at revenue. If you want to assess efficiency and long-term sustainability, look at profit.

FAQs

What is the main difference between revenue and profit?

Revenue is the total money a company earns before expenses. Profit is the money left after subtracting all costs.

Can a company have high revenue but low profit?

Yes. If operating costs are high or margins are low, a business might make a lot of sales but earn very little profit—or even operate at a loss.

Why do investors care about profit more than revenue?

Profit reflects the true financial performance and sustainability of a business. While revenue shows demand, profit shows the company’s ability to manage costs and generate real value.