Revenue is the money you earn from selling goods and services. It can also be called gross income.
Revenue is the money you earn from sales, before you subtract costs and tax. It’s included in your income statement, which is a financial statement you have to submit as part of your annual report.
Revenue is usually worked out per product or service and then added together. The formula is:
Quantity sold x unit price – any discounts, allowances or returns = profit
Revenue versus profit
Revenue is your sales income before you deduct your fixed costs, variable costs, and tax.
Once you’ve deducted costs and taxes, you’re left with what we call profit. If you’re making a profit, your business is profitable.
This means that, while your revenue is an important figure that indicates how successful you are at selling your goods and services, it’s the profit that actually matters.
Your business can generate a lot of money from sales, but if your costs exceed your sales, then you’ll be left with a small or nonexistent profit. That’s not going to be viable in the long run.
Revenue is sometimes referred to as gross, while profit is net. Gross is a total amount, while net is an amount once deductions have been made. Read more about net and gross.
How to increase your profit
There are two ways to increase the profit in your company, either by increasing your revenue—either by selling more or by increasing your prices—or by cutting costs.
Cutting costs is important, and should always be a priority, but if that is the only reason your profit is growing, then it doesn’t bode well for the long-term survival of your business. At some point you will run out of costs to cut, and then—if your sales numbers are stagnant—your profit will not increase either.