Difference Between Revenue vs Profit

From a general and simple point of view, what you get after rendering some form of service is your “payment.” But from a business point of view, you would be perceived as unspecific if you use that term. Using the appropriate jargon puts you in a professional and knowledgeable light.

We will be discussing a couple of such phrases today and how they may be different from one another. Our goal is to explain the difference between revenue and profit, but before that, let us take a look at their definitions.

Definition of Revenue

Revenue is defined as a type of income generated by a business before any expenditure courtesy of events like rendering services, production, and buying and selling. The key point that sets this concept apart from other forms of income is that it does not exclude any form of outflow.

To calculate this value, all you have to do is multiply “quantity” by “sale price.” This means that if you own a pottery venture where you make and sell 1,000 mugs every month for $2 each, then your income at the end of the month would be $2,000.

R = quantity X sale price

R is quite important in business practice because it is the basic gain calculated before expenses can be made to determine the net income, which is the key difference between profit and revenue.

Question: does this concept factor in sales made on credit? The answer to this question is both yes and no. If the type of accounting employed is accrual, then the answer is “yes.” On the other hand, if the cash accounting method is applied, then the answer is “no.”

Definition of Profit

Profit is defined as the actual gain of a venture gotten by subtracting every business-related expense. As you may know, investments do not grow if they are not maintained to a certain extent. Maintenance in this context translates to an outflow of cash like taxes, salaries, operation, production, and so on. The financial benefit realized at the end of the day after covering the required costs is what is referred to as profit.

You may ask, “Where does the profit go?” Well, it depends on the owner of the business. They may decide to spend it on anything they wish, or they may reinvest into the business to bring about bigger income eventually.

From the explanation above, calculating this value is pretty straightforward. All you have to do is subtract the expenditures from the revenue.

P = R – expenses

In the revenue vs profit comparison, you cannot help but notice how these two are interwoven. For instance, the former is a superset of the latter, and the latter is a subset of the former. Another obvious fact is how they depend on one another. If the former is less than the required cost for maintenance, then the business would suffer a loss, which is the opposite of the latter.

Main Differences Between Revenue vs Profit

R = quantity X sale price

P = R – expenses

So far, we hope you can tell the disparities between these two. To make it easier to comprehend, here is a table to further answer the question what is the difference between revenue and profit?

Basis of Comparison	Revenue	Profit
Definition	Income generated by business before any expenditure courtesy of events like rendering services, production, and buying and selling	The actual gain of a venture gotten by subtracting every business-related expense.
Calculation	R = quantity X sales price	P = R ‒ expenses
Types	Operating and non-operating	Net and gross
Set	R is a superset of P	P is a subset of R
Position in the income statement	Usually at the top	Usually at the bottom

Difference Between Revenue and Profit: Conclusion

There is still a lot that needs to be said if one must thoroughly answer the question what is the difference between profit and revenue? But for solid peripheral knowledge, this should be just enough for anyone to tell how these two are related and how they are different from one another. When a venture suffers a loss, it means it does not have enough revenue.