Revenue vs profit: What’s the difference?

Key takeaways

• Revenue is the total income your customers generate before subtracting any costs. 
• Profit is what’s left after deducting all business expenses like production costs, employee wages, and other operational fees. 
• Investors and stakeholders typically look at profit (vs revenue) to determine whether a company is sustainable in the long run. 

Key differences between revenue vs. profit

Revenue and profit aren’t interchangeable. They each play different roles in your company’s financial health. 

Revenue is the total income your customers generate before subtracting any costs. It’s the top line of your financial statement: a snapshot of how much money your business brings in from operations. 

Profit, on the other hand, is what’s left after deducting all business expenses like production costs, employee wages, and other operational fees. It’s the net income that contributes directly to your business’s growth. 

What is revenue on the income statement? 

Revenue, often called the top line, is the total income your business generates. It represents the gross amount earned from selling goods or services to customers before any deductions, like discounts or returns. 

On an income statement, revenue is the first figure you see and sets the foundation for the rest of the financials that follow. Whether it’s sales, services, or production, revenue captures the full amount earned before subtracting costs like production expenses, wages, or overhead. 

Revenue might give you a clear snapshot of the income flowing into your business, but it’s just one part of the financial picture. Although revenue measures how well your products or services are performing in the marketplace, it doesn’t account for the costs involved in making that income. To determine your actual earnings, you’ll need to understand the differences between revenue and profit.

Types of revenue 

Revenue isn’t a one-size-fits-all number. Depending on how you calculate revenue and where it comes from, your business can categorize it in several different ways. Each type can give you insight into a different part of your operations, from tidal income to recurring revenue streams. 

Total revenue

Total revenue is exactly what it sounds like: the full amount of income your business generates before any deductions. It’s the broadest measure of revenue and includes every dollar earned from customers, products, services, and other income sources. But it doesn’t account for any costs or discounts, so it’s not always the most reliable measure of financial health. 

Net revenue 

Net revenue is similar to revenue, but it accounts for deductions that could include returns, allowances, or discounts that impact the final amount of money your business brings in. In other words, it reflects your actual income after adjusting for these reductions. Unlike total revenue, net revenue is typically more reflective of the income your company truly generates after these subtractions. It provides a clearer picture of what’s left to contribute to your profit. 

Gross revenue

Gross revenue represents the total sales your core business operations generate without any deductions from expenses. However, gross revenue differs from total revenue because it only accounts for core business activities, like selling products or providing services. Total revenue is broader and can include income from additional revenue streams like interest income, investments, and other non-operational sources. Like total revenue, gross revenue doesn’t always reflect profitability or efficiency. 

Average revenue per person (ARPP)

Average revenue per person (ARPP) is how much income you generate from each customer or user. It’s calculated by dividing your total revenue by the number of people or customers you serve. This metric can help you identify trends in customer spending to increase the income generated per person. 

Annual recurring revenue (ARR)

Annual recurring revenue (ARR) tracks the predictable, recurring income your business earns annually. It’s especially important for companies with ongoing services, like subscription services or contracts, since it can help forecast future financial performance. Often a focus for investors and management teams, ARR can be a key indicator of stability and longevity. 

Monthly recurring revenue (MRR)

Similar to ARR, monthly recurring revenue (MRR) measures your business's consistent monthly revenue. This is a particularly important metric for companies with subscription-based models because it shows how much monthly income to expect. Unlike ARR, MRR gives businesses a more frequent pulse on their financial health to track growth and quickly make adjustments.

What is profit on the income statement? 

Profit, often called the bottom line, is what’s left over after subtracting all expenses from your total revenue. While revenue shows how much money your business brings in, profit shows how much you keep after covering costs like production, operations, management, and growth investments. 

On an income statement, profit is literally the bottom line. In most cases, profit is what truly indicates a company’s success in the marketplace. It directly reflects how well you’re balancing income costs and competition. 

Types of profit

Profit is more than just a single figure on an income statement. Depending on how it’s calculated, profit can provide different insights into your business’s financial health. Let’s break down the key types of profit to give you a clearer understanding of how your income and expenses add up. 

Gross profit

Gross profit measures how much your business makes from its core operations before accounting for indirect costs like rent, utilities, or administrative expenses. Your company can calculate gross profit by subtracting the cost of goods sold (COGS) from total revenue. Gross profit can help you understand whether your production and pricing strategies work, but it doesn’t always give the complete picture of profitability. 

Operating profit

Operating profit, also called operating income, subtracts operating expenses (like wages, rent, and utilities) from gross profit. It measures your company’s profitability from regular business activities without factoring in taxes or interest payments and is a key indicator of how well your business manages its day-to-day operations. Many companies use operating profit in financial analysis to compare performance against competitors.

Net profit 

Net profit, often called the bottom line, is the final figure after deducting all expenses–including taxes, interest, and one-off costs–from total revenue. It’s the most precise measure of profitability, showing you what’s left after accounting for every financial obligation. A higher net profit typically means your business operates efficiently, while a lower number could mean high costs or inefficiencies that need attention. 

Profit margin

Profit margin is a profitability ratio showing how much of your revenue is converted into profit. You can calculate a profit margin by dividing net profit by total revenue. It’s typically expressed as a percentage: a higher profit margin means your business is generating good revenue and controlling costs. It gives a quick snapshot of how efficient your business is and is often a go-to metric for investors and financial managers. 

Bottom line

The term “bottom line” commonly refers to net profit, but it’s also a reminder of the most important figure on your income statement. It’s the final number that shows how much profit your company earns after accounting for every expense. Investors, management, and stakeholders rely on the bottom line to assess financial health and make decisions about your company’s future. 

Revenue vs. profit: Complete overview

Let’s break down what impacts both revenue and profit, which one holds more weight, and how to report them. 

What impacts revenue and profit? 

Revenue is directly influenced by the price of your goods and services, the number of customers, and competition in the marketplace. The more products you sell or services you provide, the higher your revenue. But that doesn’t always mean more profit. A high revenue doesn’t guarantee profit if your costs are equally high–or worse, higher. 

Which is more important: revenue or profit? 

You need both revenue and profit to assess a company’s financial health, but profit tends to carry more weight when evaluating overall success. 

Revenue gives you a sense of market demand and the income flowing into your business. It shows how well your products or services are performing in the market. Profit, on the other hand, reflects how well your company manages resources. Because it’s often considered a more important metric than revenue, investors and stakeholders typically look at profit to determine whether a company is sustainable in the long run. 

Reporting revenue vs profit 

When reporting revenue and profit on an income statement, they typically appear in a sequence that helps investors and financial managers see the full picture. 

Revenue appears at the top—it’s the starting point for calculating your company’s financial performance. From there, expenses are deducted in stages (cost of goods sold, operating expenses, taxes, etc.) until you reach net profit, which appears at the bottom.

How to calculate revenue to profit

Calculating revenue and profit is essential for understanding the financial health of your business. Subtracting each layer of expenses—from production to management—helps you understand how much profit your company truly earns. 

Here’s how to go from revenue to profit, step by step:

1. Calculate total revenue: Revenue is the starting point. To calculate total revenue, multiply the number of units sold by the price of each unit. For service-based businesses, it’s the total income you generate from the services you provide. This number represents all the income before deducting any costs or expenses.

Formula: Total revenue = Price per unit x Number of units sold

2. Subtract direct costs (COGS): Next, you’ll subtract the COGS (cost of goods sold), which includes all expenses tied to producing or delivering your product or service. This gives you your gross profit. 

Formula: Gross profit = Total revenue - COGS

3. Subtract operating expenses: To calculate operating profit, subtract operating expenses (which include things like rent, utilities, wages, and other administrative costs) from gross profit. 

Formula: Operating profit = Gross profit - Operating expenses

4. Subtract interest and taxes: Finally, subtract interest payments and taxes to determine your net profit–this is the bottom line. Net profit shows how much of your revenue actually translates into earnings after accounting for every expense.

Formula: Net profit = Operating profit - Interest and taxes

Example of revenue vs profit 

Let’s break down a simple example to highlight the difference between revenue and profit. 

Imagine you run a business that sells handmade candles. Last month, you sold 1,000 candles at $20 each. Your total revenue would be $20,000. 

Now, let’s calculate profit. First, you’ll need to subtract the COGS. In this case, it costs you $10 to make each candle. So, your total COGS is $10,000. That leaves you with a gross profit of $10,000.

Next, you subtract your operating expenses–things like rent for your workshop, wages for your staff, and marketing costs. Let’s say your operating expenses are $3,000. After subtracting that from your gross profit, you’re left with $7,000 in operating profit. 

Finally, subtract your taxes and interest payments, which come to $2,000. This leaves you with a net profit–the bottom line–of $5,000. 

Analyze and calculate your business’s revenue vs. profit 

Revenue and profit each tell an important part of your business’s financial story. Knowing how to calculate and interpret both helps you make smarter decisions and plan for growth. Whether you’re tracking revenue trends or ensuring profitability, having the right tools can make all the difference. 

To streamline calculations and get the most out of your financial data, consider Cube’s FP&A software. With Cube, you can easily analyze revenue, profit, and other critical metrics–all while continuing to work in the spreadsheets you love. Click here to learn more about Cube.