Revenue and profit are two things of fundamental importance to companies and both concepts are related to finance — but they are not the same thing.
In fact, it is common for these terms to be used incorrectly by entrepreneurs. Some use the term “profit” to refer to revenue, and vice versa — as long as the confusion is only in the application of the terms, that is fine, but when this confusion involves the concepts, it can harm the financial management of the business.
And you already know, don’t you? Without efficient financial management , it is difficult for a company to keep its accounts balanced. And, in more serious cases, it may even have to close its doors.
That’s why it’s so important that you understand the concepts of revenue and profit and the differences between them. Keep reading to find out!
What is revenue?
Revenue is the total amount of money you earn from operating your business .
If you have a business, revenue, for example, is all the money you earn from selling products. And if you provide services, revenue is earned from selling services, from monthly fees paid by customers for recurring services, and, in some cases, from selling products, such as courses or e-books.
There are two types of revenue:
- Gross revenue : is the sum of all values obtained through the company’s operations, without deductions;
- Net revenue : is the revenue remaining after deducting taxes on the gross revenue invoice.
But what is billing? And what is cash?
Revenue and cash are other terms that are often used in finance and are often confused with income. However, while income is the sum of the entries after they occur, revenue is a forecast of future income. Cash is the money that the company has available to use.
What is profit?
Now let’s talk about profit?
Profit is what is left over from revenue after all business expenses are paid — taxes, commissions, salaries, maintenance, rent, utility bills, purchases, etc.
As with revenue, profit is also divided into subcategories:
- Gross profit : revenue minus costs of goods or services sold;
- Operating profit : gross profit minus fixed expenses and costs, such as rent, payroll and administrative expenses;
- Net profit : This is the final value after deducting both business costs and expenses.
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How do revenue and profit impact companies?
The truth is that revenue and profit are equally important for maintaining a business. Revenue , as you know, is essential for the survival of the company — after all, it is with this money that the partners can pay the bills and ensure that the operation continues to function.
In other words, without revenue, the business will have to close its doors, as it will not have the resources needed to pay rent, employees, materials, etc.
Profit, on the other hand, is not essential, since it is the surplus of resources. This means that, even if it is not profitable, a company can survive. This happens when the value of revenue is equal to the sum of costs and expenses — and the company operates at its break-even point (or at break-even, as many people like to say).
But the goal of practically all companies is to make a profit, right? And the lack of this surplus of resources is a sign of stagnation!
It is possible to give up short-term profits in order to invest more in your own business and make it grow, but in the long term, it is important for the company to be profitable!
How to have a more profitable company?
For a company to have more revenue and profit, they need to be greater than the sum of all their expenses. Check out some tips in this regards.
Invest in branding
Branding is the work of brand management. With it, you can add value to your products and services, making your company stand out from others in the market. This will naturally make more and more people seek out your business.
Study the market
Studying the market in which your company operates is the best way to understand some points that are fundamental to increasing sales, such as:
- Who is your ideal client;
- Who are your competitors and what are they doing to sell more;
- The seasonality of the sector in which you operate;
- The current context of the company.
Train your team
Staff training will ensure two things — that you deliver high-quality products and services, and that the service you provide to your customers meets (or exceeds) their expectations.
Without this, you will have a hard time getting customers to buy from your company again. After all, we only do business with companies we are satisfied with, right?
And as a bonus, you can even get new customers through referrals from people who have had positive experiences with your business.