The terms Business revenue and profit are often confused to mean the same thing by many business owners. Yes, they are both incomes received during a business and they are also good indicators of measuring business success, still, they are not the same and there exist differences between them. In this article, you will learn the difference between revenue and profit and also a few tips you can use to increase your business revenue.
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What is Business Revenue?
Business revenue often regarded as the top income line in a business, refers to the total income made during business operations. In business, it is calculated as the price of a product multiplied by the number of products sold.
Now, don’t confuse revenue to mean the sales your business makes because sales are limited to strict income earned from selling a product or service to customers. While revenue can be gotten from sales of business products income from business fees and income generated from business properties. They can also include revenue from investments your business has made, grants, interests etc.
Revenue is divided into gross and net revenue.
- Gross revenue: this is the sum of all proceeds your business has generated and it does not take into consideration the cost of production.
- Net revenue: is the result of the gross revenue minus the cost incurred from the goods sold and other expenses.
What is Business Profit?
Profit or net profit is the income received or left off after the cost of business operations and other expenses are subtracted from revenue.
Profit is divided into gross and operating profits of which gross profit is fixed and variable. Gross profit = Revenue – the cost of goods sold and associated cost from the production of business goods and services.
Operating profit considers the expenses associated with running a business and it includes, rent, utility bills, marketing and advertising cost etc.
The Differences Between Business Revenue And Profit
The primary difference between revenue and profit is that the former(revenue) is the top income line of a business while the latter(profit) is the bottom income line of a business.
Another distinct difference between revenue and profit simply is; revenue is any income generated before expenses are subtracted. Profit is the income left over after the business liabilities and expenses of running a business have been deducted from revenue.
Revenue is usually higher, while profit is lower. In the actual sense, profit or net profit gives a more detailed picture of a company’s financial status and business performance. Revenue provides a vague description of a business’s financial performance as a business can have a high revenue but still runs a net loss.
When you understand the difference between the two, it can help a business account accurately for its expenses at every stage of the business and effectively manage business operations. Revenue and profit are indeed, important business terms every entrepreneur concerned about attaining financial security for his business should get familiar with.
How to Increase your business revenue
Well, did you know that increasing your business revenue can increase your business profit? The idea behind increasing revenue is to widen the income margin such that its value is not at its lowest after the business expenses and associated costs are deducted. This would help to increase the money leftover which is profit.
Below are a few tips that can help to increase your business revenue.
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Increasing sales
Selling more would help generate more revenue as the number of goods and services sold is going to increase. When increasing your sales efforts you should focus on building better marketing campaigns and up-selling your products.
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Reducing operational costs
Yes, the result of profit is gotten from the subtraction of the expenses incurred while operating a business from the generated revenue. Reducing the costs pulled from operations will leave you with a higher profit.
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Increasing prices
Increasing the price of your business services can help increase revenue which further affects profit but you should try to make it flexible as you don’t want your business to lose altogether. Too high a price can push customers away and reduce the sales made.
Another way of increasing revenue for your business is by maximizing unused resources in your business. For example; renting unused space in your company can help reduce the cost of overall rent payment which is one of the expenses deducted from revenue. Etc.