Revenue is the income earned by the business entity through its day to day operations. Profit is the gain of the company i.e. when the amount earned exceeds the amount spent; the result would be profit. If revenue is the backbone, then profit is the lifeblood of the business. Both should go hand in hand for the long term survival of the concern. There are two types of profit, i.e. gross profit and net profit. Many think that the two terms are synonymous, but there is a difference between revenue and profit.
Contents: Revenue Vs Profit
|Basis for Comparison||Revenue||Profit|
|Meaning||Proceeds from various activities like sale of goods, services rendered etc. during a period.||Surplus left after deducting the cost of inputs, miscellaneous expenses and taxes is profit.|
|Interdependency||Revenue is independent of profit.||Profit is dependent on revenue.|
|Importance||For the ultimate growth of a business, revenue is must because without it the company is not able to earn any kind of profit.||Profit is the reward for the risk taken by the entrepreneur in business and is used for the growth of business as well as to meet the future contingencies.|
|Types||Operating Revenue, Non- Operating Revenue.||Gross Profit, Net Profit.|
Definition of Revenue
Revenue is the amount received by the business against the sale of goods and services and through the performance of other day to day operations. When the revenue is generated from sales, it is termed as a “Turnover”.
Revenue is the lifeblood of the business because it helps in meeting the fixed and variable expenses of the firm. It helps the company to run its business effectively and efficiently. Below are the types of Revenue:
- Operating Revenue
The revenue which is generated from normal business operations is known as operating revenue e.g. Sales.
- Non- Operating Revenue
The revenue which is generated through other activities of the business which are running side by side is termed as Non-operating Revenue e.g. Interest, Tax, Dividend, Rent etc.
Definition of Profit
Profit is the reward for the risk undertaken by an entrepreneur to run his business i.e. it is the return on the investments done by him. It is essential for the growth and long-term survival of every business, in fact the success of the business relies only on its profit earning capacity.
Profit can be obtained after deducting several expenses such as, Trading expenses, Office and Administration expenses, Selling and Distribution expenses, Taxes, Interest, Dividend, etc. Below are the types of profit:
- Gross Profit
The profit arrived at after deducting the trading expenses from Sales is known as a Gross Profit.
- Net Profit
The profit obtained after deducting the office and administration expenses, selling expenses and other expenses from the revenue is the Net profit.
Key Differences between Revenue and Profit
- Revenue is the amount received by the business through various trading activities while Profit is the surplus left after reducing all types of expenses and costs.
- Revenue is necessary for running the business efficiently and effectively. On the other hand, Profit is necessary for the survival and growth of business in the long term.
- Revenue is not dependent on profit in any way, but profit is dependent on revenue. In other words, the more the revenue, the more is the profit.
A company sells cars, so the amount received from the sale of a car is considered as a revenue but if the revenue exceeds the cost of production (i.e. Material used, salary, lighting expenses, insurance, taxes, etc.) then it is a Profit.
Ways for increment in Revenue:
- Offer a quality product at reasonable prices.
- Offer Discounts.
- Spread knowledge about the goods and services through advertisements.
- Provide after sales services.
- Provide rebates.
- Expand area of operation.
- Charge fair prices.
Ways for increment in Profit:
- Remove unnecessary expenses.
- Give less discount.
- Use inventory control systems.
- Avoid wastage
- Take discounts from suppliers.
- Increase price wherever necessary.
- Find new customers and market.
- Add new product lines.
Now, from the above-detailed discussion it is quite clear that how these two terms Revenue and Profit are different from each other, but it is also true that profit comes from the revenue. So for the success of any business, it is necessary that both should grow simultaneously.