Revenue is the money a business receives from sales and expenses, while profit is the money left over after expenses. A company can have revenue without profit, but not profit without revenue. High expenses can reduce profit, and low revenue can lead to losses.
Sometimes people are confused about the relationship between revenue and profit. Revenue is the amount of money a business receives from sales and other expenses to customers. Profit, however, is the amount of money left over from a company’s revenues after its expenses have been subtracted, such as supplies for building a product, taxes, rent, marketing, and even personnel expenses. A company can have revenue without making a profit, but it cannot have a profit without revenue. In some cases, a company’s expenses exceed its revenues and it incurs a loss rather than earning a profit.
It’s easy to think that a business is making a profit if it collects fees or charges or sells products or services to customers. The fact that money is transferred from a customer to a businessman, however, does not necessarily mean that the business is profitable. In some cases, a business may have significant revenues but benefit from little revenue from its sales. This usually occurs because a company’s expenses are so high that it makes it difficult for the company to earn a profit. Sometimes, however, revenues can be so low that even small expenses can eat into the company’s potential profits.
Considering an example can help clarify the relationship between revenue and profit. For example, if a business specializes in selling custom lampshades, its expenses may include the cost of purchasing supplies and lampshades; wages; rent or mortgage on commercial property; taxes; advertising costs; utility; and a wide range of other expenses. If this company sold $10,000 US Dollars (USD) in custom lampshades in one month, it might appear to be earning a high profit. Subtracting $8,000 USD in expenses from his sales would still leave him with a smaller profit. In this case, his profit would be $2000 USD.
Entrepreneurs typically strive to have both income and profit, but circumstances sometimes make it difficult to do so. In some cases, companies don’t sell enough to ensure both revenue and profit. Often, this isn’t the owner’s fault, but some business owners make poor choices that leave them without much profit. Sometimes, an entrepreneur’s expenses are so high that he incurs a loss; this means that he not only failed to earn a profit, but he also lost money in running his business. For example, if an entrepreneur’s revenues are $5,000 USD, but his expenses are $6,000 USD, he is losing money running his business.
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