Revenue vs. profit: What's the difference?

You just closed a record-breaking quarter. Sales are higher than ever. But when you check the books, you’ve barely got enough to cover next month’s payroll. That disconnect is why understanding the difference between revenue and profit matters. Knowing what each number tells you helps you steer clear of false confidence, catch hidden structural problems early, and make decisions that move your business forward.

In this guide, we break down the essentials for finance managers, small business owners, and entrepreneurs. You’ll learn how revenue and profit are calculated, how they show up on your income statement, and why each plays a different role in assessing performance and planning for growth.

What is revenue?

Revenue is the total income your business generates from selling goods or services, before subtracting any expenses. It’s often called the “top line” because it appears first on your income statement and serves as the basis for every other financial calculation.

Understanding revenue is crucial to measuring your business’s size, reach, and market activity. It tells you how much money is coming in, but not how much you keep. That distinction matters, especially when comparing performance across quarters, products, or competitors.

What impacts revenue?

Revenue rises or falls depending on how well your business connects with paying customers. That connection depends on a mix of internal choices, like pricing and product mix, and external factors that you can’t fully control. When revenue slows, you need to understand why. Is it a market problem? Or something in your strategy? The factors below play a central role in what your business earns over time.

Market demand & customer base expansion

The most direct way to grow revenue? Reach more people, or sell more to the ones you already have. Expanding into new markets, increasing customer retention, or improving your conversion rate can all increase total revenue. These efforts only pay off, however, if there’s sustained demand for what you offer. A dip in interest, even with a growing audience, can flatten sales.

Pricing strategies & discounts

Revenue starts with a price tag. Raise your prices, and your revenue goes up (unless you lose customers). Offer steep discounts, and you might bring in more buyers, but at lower margins. That’s why it’s critical to balance short-term volume with long-term earnings. If you’re not clear on how pricing changes affect your earnings, start by asking: is revenue the same as gross profit? It’s not, and the gap can shrink your gross profit fast. 

Product/service diversification

Adding new products or services can unlock new revenue streams. A software company might launch a consulting offer, or a retailer might introduce a subscription tier. The key is relevance. Each new offering should serve existing customers or attract a clearly defined new segment. This strategy works best with clear cost tracking so you can measure results beyond gross revenue vs gross profit expectations. 

Marketing effectiveness

Revenue depends on getting the right message in front of the right people at the right time. If your marketing strategy doesn’t resonate with your audience, your sales revenue won’t match your growth goals, no matter how strong your product or service. Better targeting, sharper copy, and smarter channel choices all contribute to more efficient revenue generation.

External economic conditions

Sometimes, revenue changes have nothing to do with your product. A downturn in the broader economy, rising interest rates, or new regulations can all reduce demand. On the flip side, industry booms or favorable policy shifts open up growth windows. Keeping an eye on these signals helps you separate internal performance issues from external constraints and adjust your strategy accordingly. 

What is profit?

Profit is the income your business keeps after subtracting all expenses from your total revenue. It reflects what’s left once you’ve paid for everything: production costs, salaries, rent, taxes, and interest. In short, it’s the number that tells you whether or not your business is actually working.

Profit matters because it cuts through the noise of sales figures and spending. It’s the clearest indicator of overall profitability, and it’s what investors, lenders, and owners rely on to assess business health. While your revenue shows activity, profit shows performance. 

There isn’t just one kind of profit, though. Each type highlights a different layer of your financial picture. Understanding the distinction helps you spot where your business operates efficiently and where it leaks money.

Gross profit

Gross profit is your revenue minus the cost of goods sold (COGS). It tells you how efficiently your business prepares and delivers its product. This number is an early checkpoint in your financial planning, a key part of how to prepare an income statement that helps connect sales to actual earnings.

Operating profit 

Operating profit is what’s left after subtracting operating expenses from gross profit. These include rent, utilities, and marketing expenses: costs that keep the business going but that aren’t tied to your product directly. Decisions about these expenses often come down to judgment, and a solid cost-benefit analysis can help clarify whether a cost is actually worth it. 

This number is also called EBIT (earnings before interest and taxes) and is often used to compare companies across industries. It’s a strong indicator of your business’s core efficiency.

Net profit 

Net profit is your true bottom line. It comes after subtracting everything—COGS, operating expenses, interest, and taxes—from your total revenue. This is the most comprehensive measure of financial well-being, and it’s the figure most cited when people talk about a business’s profitability. It’s also the number used in most profitability ratios and long-term planning.

Profit before tax 

Profit before tax (PBT) is the amount left after all expenses except taxes are deducted. It gives you a preview of earnings before the final tax burden. PBT is useful for comparing performance across different tax jurisdictions or evaluating the impact of one-time deductions. It helps isolate operating performance from tax strategy.

What impacts profit?

If you’re regularly hitting revenue targets and still feel like you’re just scraping by at the end of the month, you’ve likely got a profitability problem. It usually starts long before numbers are finalized, with poor decisions around pricing, costs, operations, and even tax planning. If you’re only watching the top line, you’ll miss the small mistakes that quietly eat away at your profit.

Cost control measures

Keeping a close eye on operating expenses and cost of goods can help you cut down on unnecessary overhead and have a big impact on your bottom line. Even a high-revenue business will burn through cash without spending discipline. Tools like budgets, expense audits, and well-managed approval processes all contribute to stronger process margins. 

Pricing strategies for margins

Revenue doesn’t matter much if your margins are too thin. Profitability often comes down to how you price your goods or services relative to your costs of production. Raising prices, offering value-based packages, or eliminating low-margin offerings are all ways to improve profit without increasing sales volume. Smart pricing decisions require a clear understanding of your cost structure and the market. 

Operational efficiency

Efficient systems save time and money. Whether it’s automation, improved workflow, or eliminating bottlenecks, operational improvements can widen your profit margin even when revenue stays flat. Investing in process audits or upgrading your financial management tools can uncover hidden inefficiencies that drain your profit. 

Tax planning & interest management

Taxes and interest don’t affect your gross profit, but they hit hard when calculating net profit. Strategic tax planning, such as optimizing deductions or shifting income recognition, can legally reduce your tax burden. Managing loan interest, whether by refinancing or by paying down debt, also preserves more of what you earn. These non-operating costs are often overlooked but can have a big impact on your bottom line.

External market conditions

Some profitability factors are outside your control. Changes in supply chain costs, market demand, or competitor pricing can all put pressure on your margin. Economic downturns might reduce your revenue, while inflation can increase your operating costs. Staying agile and building a buffer into your pricing model can help protect profit during volatile periods. Regular business financial planning helps prepare you for these external risks.

What's the difference between revenue and profit?

Revenue and profit are both crucial for staying on top of your business’s financial position, but they serve very different purposes. One measures how much money you have coming in. The other tells you how much you’re actually making once you’ve accounted for expenses. 

Knowing the difference between revenue and profit is essential if you want to accurately evaluate performance, manage costs, and make data-driven decisions about where to reinvest. Below are a few key distinctions that impact how you’ll apply each number in financial analysis and strategic planning.

Definition and components

The definition and what’s included in these terms differ:

• Revenue is the total amount that your business earns from goods or services before any costs are removed.
• Profit is what’s left over after you subtract all relevant expenses, such as cost of goods, operating expenses, taxes, and interest.  

You’ll see both clearly broken down when learning how to prepare an income statement.

Impact on business decisions

Revenue might influence high-level goals like market share, pricing strategy, or expansion. Profit determines whether those goals are ultimately financially sustainable. 

If revenue is growing while profit stays flat or dips, that’s a red flag for your business’s financial health and a sign that you may need to reassess your cost structure. Reviewing your financial management tools can help you track and respond to these shifts in real time.

Use in financial statements

On your income statement, revenue sets the top line, while profit defines the bottom line. 

Revenue appears near the top because it’s the starting point from which all other calculations flow. 

Profit shows up at the bottom because it’s the result of a multi-step calculation that factors in other figures, like total costs and any deductions. It pulls in information about your overall business to give you insight into operational efficiency and long-term viability. 

Costs

Revenue doesn’t account for the cost of running your business. It just shows what you’ve earned. Profit is built entirely on costs: subtracting them from your revenue is the only way to reach a profit figure. That makes profitability a far more nuanced metric for day-to-day decision-making and managing business finances.

Timing & calculation focus

You record revenue when a sale is made under most accounting methods. Profit isn’t calculated until after you’ve worked out all the related costs for the same period. 

This difference means profits often better reflect your true position. True, there’s a slight lag, but it generally offers a more complete snapshot of the business’s financial reality.

How to calculate revenue and profit: Step-by-step guides

Even if you rely on a bookkeeper or use accounting software, you still need to understand how revenue and profit are calculated. These numbers shape your core business decisions like what you can afford, where you need to cut back, when to hire, and whether growth is actually sustainable. If you don’t know what goes into the formulas, you’re flying blind, even with perfect reports.

How to calculate revenue 

Revenue is the key figure in almost every financial calculation related to your business. It tells you how much the business brought in before any expenses. To find it, you’ll combine all your income, less any returns or discounts:

Revenue = Total Sales + Other Income - Returns and Discounts

• Step 1. Determine total sales over a period. Start by adding up all the income your business generated by selling your goods or services during a given period. Let’s imagine that the internet startup “Widgets.io” sells $1.2 million worth of software subscriptions in a year; that’s its total sales revenue.

Revenue = $1.2 million + Other Income - Returns and Discounts

• Step 2. Add other income sources if applicable. Include any non-core income streams, like interest or royalties, or add-on services and partner fees. During the same year, Widgets.io earns $400,000 from support packages and $100,000 in personalized onboarding services for a total of $50,000 in other income.

Revenue = $1.2 million + $500,000 - Returns and Discounts

• Step 3. Deduct returns or discounts from total sales, if relevant. If your business offered discounts or issued refunds to any customers, subtract these from your total so far. Widgets.io refunded $250,000 in cancelled subscriptions.

Revenue = $1.2 million + $500,000 - $250,000

Revenue = $1.45 million

• Step 4. Review industry benchmarks for context. Once you’ve found your total revenue, compare your numbers to publicly available data for your industry to get a sense of where you stand. If the average SaaS company brings in $1 million annually, Widgets.io is well ahead of the curve at $1.45 million, which suggests strong market traction.

How to calculate profit 

You don’t really know if your business model works until you calculate profit. This number represents what’s left after covering your costs. To find it, apply the formula:

Net Profit = Total Revenue - Cost of Goods - Operating Expenses - Taxes and Interest

• Step 1. Start with total revenue from sales data. Total revenue is everything your business brought in from sales during a given period. If Widgets.io sells $1.2 million worth of software subscriptions in a given year, that’s the total annual revenue for that year

Net Profit = $1.2 million - Cost of Goods - Operating Expenses - Taxes and Interest

• Step 2. Subtract Cost of Goods Sold (COGS). COGS includes all direct costs associated with producing or delivering your goods or services. Widgets.io pays $300,000 to run servers, develop new features, and onboard new users. That leaves a gross profit of $900,000.

Net Profit = $1.2 million - $900,000 - Operating Expenses - Taxes and Interest

Remember, gross profit isn’t the same thing as gross income. Gross income typically includes all earnings before taxes and deductions, but can also incorporate income beyond core sales, depending on how it’s defined for tax or reporting purposes.

• Step 3. Subtract operating expenses. Operating expenses account for money you spend to keep your business up and running, but don’t play a direct role in generating your product or service. Salaries, office rent, and advertising are classic examples. Widgets.io spent $500,000 on salaries, office space, and ad campaigns. The company’s operating profit is $400,000.

Net Profit = $1.2 million - $900,000 - $500,000 - Taxes and Interest

• Step 4. Deduct taxes and interest payments to find the net profit. Add together any federal or state taxes you paid, along with interest payments, and then subtract this to arrive at your final net profit. Widgets.io made payments worth $50,000 in taxes and in interest on a business loan. 

Net Profit = $1.2 million - $900,000 - $500,000 - $50,000

Net Profit = $330,000

Revenue vs. profit examples

The difference between revenue and profit becomes clear when you look at the numbers. 

Imagine a company that sells $1 million worth of products in a year. That’s its total revenue. But if its cost of goods is $400,000 and operating expenses are $600,000, there’s no money left after balancing the books. The net profit is zero, which means the company booked sales, but didn’t keep anything.

Example: Acme Corp launched a new product line and invested heavily in both development and marketing. In Q4, the company generated $500,000 from the new product, but after deducting $250,000 in production costs and $300,000 in marketing and operational expenses, it ended up reporting a $50,000 loss. The high revenue reflects strong demand, however, so Acme Corp anticipates profit in the next quarter now that the company has absorbed the cost of front-loaded investments.

Alternatively, think of a consulting firm that posts just $200,000 in revenue, but reports profits of $150,000. The business relies on word-of-mouth referrals and doesn’t have significant overheads, which means the two owners end up pocketing most of what the company makes. 

Example: ThinkCo, a digital marketing agency, relies on contractors for larger projects and doesn’t maintain a formal office. Last year, the agency brought in $500,000 in revenue. After paying $50,000 in non-employee compensation and another $50,000 for software licenses and advertising, ThinkCo finished the year with $450,000 in profit, which the two founders split evenly.

How a company perceives revenue or profit can vary depending on industry and lifecycle stage. A tech startup might prioritize revenue growth over profitability in order to attract investors, even if that means running at a loss. A manufacturing company, on the other hand, would likely prioritize cost control in order to maintain healthy profit margins. 

Which is more important: revenue or profit?

Revenue and profit each tell a different story, and which one matters more depends on what you’re trying to achieve in your business. The right target depends on where you are in your growth cycle versus where you want to go. 

If you’re focused on growth or market share, high revenue can signal strong demand and a solid foothold in your industry or sector. That doesn’t always mean you’re making money, however. If your expenses, cost of goods, operating costs, or other outflows outpace your inflows, you could post impressive revenue numbers and still lose money.

A strong net profit, on the other hand, shows that you understand how to run your business efficiently. You’re keeping more of what you earn, which supports reinvestment in strategic projects and gives you a cash cushion for financial stability. But if your market is small or saturated, profit might grow slowly even with great margins. 

Most businesses benefit from balanced attention to both metrics. Use revenue to measure reach and profit to assess sustainability.

Revenue vs profit FAQs

Is revenue always greater than profit?

Yes, revenue is always greater than profit (unless your business isn’t making money.) That’s because profit is what’s left after you subtract costs, like operating expenses, rent, and cost of goods sold. If those costs are too high, or even exceed your revenue, your net profit will shrink or go negative. So, while total revenue tells you how much you’re bringing in, profit tells you whether you’re actually earning money after paying the bills and covering costs.

Is it better to increase revenue or profit?

It depends on your business goals, but profit is usually the better long-term focus. More revenue might look impressive on paper, but if your expenses grow just as fast (or faster), you won’t actually earn more. Increasing net profit means the business keeps more of what it earns, which improves overall financial health and gives you more flexibility to reinvest. Remember, boosting profitability can go beyond chasing sales. Raising prices and cutting costs can also increase the amount of money your business has to spend.

Is revenue before or after expenses?

Revenue is before expenses. It shows how much money you made from sales, not how much you kept. When you subtract your operating expenses, cost of goods sold, and other expenses, you’ll find your net profit. So, if you’re looking at your business’s financial health, don’t stop the analysis at revenue. You’ll need to dig deeper into your income statement to understand what’s left after expenses.

Does revenue include costs?

No, revenue doesn’t include costs. It’s the total amount of money you bring in from selling your goods or services before you subtract anything. You’ll see it at the very top of your income statement. Remember, this is your starting point, not your profit. To understand what your business actually keeps, you'll need to subtract your operating expenses, cost of goods sold, and make other deductions to calculate your net profit.

This blog is based on information available to Rippling as of June 23, 2025.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.