In order for you to start your own business, you need to dive and better understand some terms and business concepts.
Revenue and profit are two different terminologies that have certain definitions and walk-arounds.
Successful businesses are usually rated based on the analytics of its revue and profit.
In this article, we will walk you through the main difference between profit and revenue.
Difference Between Profit and Revenue: Quick Overview
A profit: is the money that a company or a business retains after paying all expenses and generating income.
A revenue: is the money the company or a business earns from selling products and/or services.
Difference Between Profit and Revenue: Revenue
As we explained earlier, a revenue is the amount of money a company or a business earns from selling different products and/or services.
Revenue contributes in helping individuals understand the cash flow they have and better estimate their profits.
There is a common revenue term in business, which is called: ARR.
APR is the Annual Recurring Revenue. ARR helps showing the expected revenue; as it calculates the recurring money amounts.
You can easily track your business progress and make better decisions by the help of the Annual Recurring Revenue (ARR).
Difference Between Profit and Revenue: Profit
As we mentioned earlier, a profit: is the amount of money a company or a business retains after paying all expenses and generating income.
Profit has important and different types:
1. Gross Profit (GP):
It is basically done by a certain calculation method where you must deduct the revenue from the cost of goods sold (COGS).
COGS comprises all expenses associated with delivering your products or services such as subscription fees.
2. Operating Profit (OP):
There is always a running and recurring expenses related to each business. This can be: rent, salaries, marketing tools, advertising costs, and utility bills.
You should subtract all these known costs from the original profit to get the amount of the operating profit.
3. Net Profit (NP):
Net profit is simply defined as the excess amount of money left after subtracting all expenses and income amounts.
Difference Between Profit and Revenue: Calculations
If you want to calculate your business revenue:
Total Revenue = Number of Units Sold X Cost Per Unit.
If you want to calculate your business profit:
Total Profit = Total Revenue - Total Expenses.
It is important to understand all these business replated topics and terms before you start your own business.
In this article, we have walked you through the difference between profit and revenue.
Make sure you check every single detail and consult financial advisors if you feel the urge to.
