Revenue vs profit: What’s the difference?

It may sound like they’re describing the same thing, but revenue and profit are very different terms to the discerning financial professional. Let’s cover the key differences between them, how to calculate each one, and how to best explain them to collaborators who aren’t part of the Office of the CFO.

What is the difference between revenue vs profit?

At their core, both revenue and profit are a way to describe money coming into a business. But how that money is generated and their relationship to expenses are different. Here’s the basic definition of each term:

• Revenue: The total amount of money made through the sale of products or services, as well as earnings made from dividends, interest, and rent of any owned real estate.
• Profit: The amount of money made by a business after deducting expenses, debts, operating costs, and other income streams.

The bottom line? Profit gives you a better overall picture of an organization’s financial health, while revenue only shows how much money came in—not what went out.

Revenue vs income

What about income? Is this a term that should be used interchangeably with revenue and profit? Not exactly.

According to the New York State Society of CPAs (NYSSCPA), income is defined as an inflow of revenue over a specific amount of time.

Confusingly, other sources might define “income” the same way you might define profit (i.e. revenue minus expenses). But, generally, the NYSSCPA definition is the one most financial professionals use.

Revenue vs cash flow vs profit

Now that the difference between revenue and profit has been outlined, let’s cover cash flow. Here’s a quick definition, again from the NYSSCPA:

• Cash flow: The amount of cash generated by a specific activity, over a specific period, after appropriate deductions have been accounted for.

What’s an example of cash flow? Say your organization releases a new product line, and a VP wants to know how much money it generated. By taking all the cash generated by that product since its launch and deducting expenses and costs associated with producing and selling that product, you can generate a cash flow report for that VP. Note that the main difference between profit and cash flow is profit covers different kinds of revenue, not just cash.

What impacts revenue vs profit

Revenue just looks at the money generated from your organization’s various activities. That means increasing prices for your products or services, a decrease in sales, and anything else that affects how much money is generated by these activities can impact your revenue.

All these things can affect profit as well. But since profit is revenue minus expenses, anything your organization does to increase or decrease expenses will impact profit, as well.

How to calculate revenue vs profit

Calculating and reporting on revenue and profit are among the most important responsibilities of the Office of the CFO. The calculation itself is simple. It’s usually the amount of data the average organization needs to complete that calculation that makes things complicated.

How to calculate revenue

There are several ways you can calculate revenue, depending on how you’re trying to report your revenue. Generally, though, you’ll do it this way:

Total revenue = Number of items sold x Individual sales price

You might also want to calculate your revenue based on your customer base rather than products or services:

Total revenue = Average price of product or service sold x Number of customers

How to calculate profit

Calculating profit is just as simple:

Total profit = Total revenue - Total expenses

The challenge comes in aggregating all the expenses involved in this calculation. Here are just a few of them:

• Cost of products sold
• Wages
• Rent
• Utilities
• Delivery expenses
• Insurance
• Advertising and marketing
• Depreciation
• Taxes and licenses
• Bad debts

Does manually compiling all this data seem impossible? There’s a better way.

How a financial performance platform can help you calculate revenue and profit

A financial performance platform automatically compiles income and expenses from multiple sources in a single place. From there, you can run reports and calculate both revenue and profit. One of the greatest advantages of a financial performance platform is the ability to give leaders on-demand data outside of your usual month-end processes, like closing the books or reconciling accounts.

The best platform for doing all this? Prophix One.

Prophix One is a financial performance platform trusted by organizations all around the world for financial planning and analysis, consolidation, account reconciliation, and more. AI-powered processes allow the Office of the CFO to get all the data they need, calculate revenue and profit, and produce reports on their organization’s financial health in minutes.

How to include revenue on a profit and loss statement

Revenue is typically included at the top of a profit and loss statement before any expenses are accounted for. Depending on your organization, total revenue may be broken down into categories based on its source, like sales, services, or consulting.

Example of revenue on a P&L statement

See the revenue section at the top of this statement template from Wise? In this case, it’s been broken down into four categories:

• Sales revenue
• Service revenue
• Interest revenue
• Gain of sales of assets

How to include profit on a profit and loss statement

Revenue is listed at the top of a profit and loss statement, followed immediately by expenses. Profit is listed at the very bottom of a profit and loss statement, usually as a single line named Net Profit.

That profit represents the difference between all revenue and expenses on the statement. If that number is negative, it’ll be marked as a loss, with the number in brackets.

Example of profit on a profit and loss statement

In this example of a profit and loss template from Freshbooks, you can see both profit and net profit represented at the very bottom.

Reasons why revenue and profit are important

Revenue and profit are two of the most important numbers your organization will track.

Revenue is your organization’s lifeblood

With no revenue, operations stop. Period. Even non-profit organizations and government agencies need revenue to keep the lights on, pay their employees, and continue to provide the product or service that brought them customers in the first place.

Measuring revenue is a basic, vital accounting responsibility. By itself, it can tell you if a business is growing, contracting, or in trouble.

Profit gives you a more complete picture

While tracking revenue tells you how much money is coming into the organization, it doesn’t tell you if that amount is enough to really keep operating. Since profit accounts for revenue and expenses, it can answer important questions like whether a particular product is costing more than it’s bringing in, or if you should be adding to your headcount next quarter.

Investors prioritize revenue and profit

Whether your organization is publicly traded or not, it has shareholders, people who directly benefit from its growth. That’s why whenever the Office of the CFO needs to report to them, shareholders will expect to see data on revenue and profit since it tells them whether their investment is growing or not.

FAQs about revenue vs profit

Still have questions about revenue and profit? Here are all the answers, right from the experts.

Is revenue the same as income?

Revenue and income are similar enough that they’re often used interchangeably. However, income usually refers to money coming into the business over a specific period of time, according to the NYSSCPA.

Is revenue or profit more important?

That depends entirely on what you’re trying to accomplish. If you want to report on how much money a product or service has brought in, then revenue might be more important to track. But if you want an overall picture of an organization’s financial health, measuring profit is a better bet. That said, most organizations track both.

Should I increase my revenue or my profit?

What are your organization’s goals? A non-profit organization might focus almost exclusively on revenue, while a publicly traded corporation usually wants to maximize profit to create more value for shareholders.

In most situations, increasing profit represents an increase in revenue and a simultaneous decrease (or maintenance) of expenses, making it a higher priority.

What is Annual Recurring Revenue?

Recurring revenue describes revenue that comes in repeatedly. That repetition can be daily, weekly, monthly, or annually. That means annual recurring revenue refers to repeated revenue that comes in every year.

What is Net Recurring Revenue?

Net recurring revenue usually refers to the monthly recurring revenue that comes from new customers or increases in monthly recurring revenue from existing customers, after the amounts lost from customers who stop buying your product/service or buy less of it.

What is Gross Profit?

Gross profit is the amount of revenue an organization makes from sales with only the cost of goods sold deducted from it. Taxes, operating expenses, and fixed costs aren’t deducted from this amount.

What is Net Profit?

Once all expenses, costs, and taxes have been deducted from your gross profit, you are left with net profit.

Conclusion: How a financial performance platform can help track revenue vs profit

Tracking revenue and profit is crucial for your business to keep growing. But manually compiling all the data you need for this is time-consuming and labor-intensive—a full-time job by itself for people who already have other responsibilities.

That’s where Prophix One comes in.

Prophix One is a financial performance platform that centralizes all your organization’s financial data and produces automated reports that give you a full picture of revenues and profit at a glance, while allowing you to dive in for more in-depth reporting.

Learn more about Prophix One.