Revenue vs. Profit: Do You Understand the Difference?

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It’s not uncommon to hear the words “revenue” and “profit” used interchangeably, but they’re not the same thing. Whether you want to buy a hot stock, open your own business, or just sound like you know what you’re talking about at your next dinner party, now is the time to learn one from the other.

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Revenue is What You Make, Profit is What You Keep

Both revenue and profit deal with the money that a business earns. But companies can — and often do — earn revenue while still operating at a loss. That’s because revenue represents the amount of money that a company brings in from sales and other income streams like service fees, dividends, or rent. 

Profit is what’s left over after the cost of doing business is deducted from the company’s revenue. 

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The Big Number is on Top, the Little Number is on the Bottom

In accounting, revenue is referred to as the top line. That’s because it appears at the physical top of income statements. Underneath that number is a whole bunch of other numbers — all with minus signs next to them — that nibble away at a company’s revenue. Things like: 

Once you get to the very end of the document after all those operating costs are subtracted from the top-line revenue, whatever is left over is the company’s profit. Located at the very bottom of the income statement, it’s also called “net income,” or simply, the company’s bottom line. 

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Success is Not Always Measured in Profits

Healthy businesses operate at a loss all the time, meaning they operate without earning a profit because their expenses are greater than their revenues. Amazon didn’t record its first profitable year until 2004 — but Jeff Bezos had been in business since 1996.

During the growth stage, businesses often reinvest every dollar — including profits — back into the company to fuel that growth. Airbnb isn’t profitable, neither are Casper, Lyft, Blue Apron, or Pinterest, and the list goes on. 

None of these businesses are doing poorly — far from it. Their executives and investors have decided that sacrificing profit today for growth tomorrow is a tradeoff worth making. 

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How is Revenue Calculated?

Businesses use many different methods to calculate revenue. According to FinancialForce, the following are some of the most common formulas:

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A Glossary of Terms

In simplified terms, profit is what’s left over after all expenses are deducted from a business’s revenue, but it’s a bit more nuanced than that. Here are some terms you’ll need to know.

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Last updated: Oct. 21, 2021