Talking about the finances & economics of business is vitally important for sustainable success.
The more educated we are on the tricky topics of business, the better it’ll be for our decisions and our results.
In the long run, if we can get comfortable talking about finances & create personal clarity on the usually challenging principals of business economics, we will be setting ourselves & our business up for sustainable success in the marketplace.
In this blog post, we will be discussing the difference between revenue & profit.
“Sales Revenue” or simply “Revenue” refers to the total amount of income you made from your business operations.
Think of the product(s) you sell or service(s) you offer. The total amount of money you made from those offers is your sales revenue/revenue. It is also called your “top line” because it is usually written at the top of an income statement.
You can calculate your revenue with the following formula…
Revenue = Quantity x Price
For practical example, if you are a video coach and sell 20 packages this month for $250, your revenue for the month would be $5,000.
Profit refers to the income that you have left after you have calculated & delegated your necessary expenses/taxes. It is also called your “bottom line.”
Your expenses will include inventory costs (what it takes to make your product/service), overhead costs (think rent/internet bills & paying employees) and taxes.
Profit can be calculated with this formula…
Profit = Revenue – Expenses
Continuing from the example above, if your revenue for the month is $5,000 and your expenses totaled $1,070 you would have a total months profit of $3,930.
To have a profitable business, you need to be left with money after your expenses have been calculated.
Once you have your profit amount, you can take that money and 1) pay yourself and 2.) invest it back into the biz/save.
If you personally want to take home more money, then you’ll need to grow your revenue which is done by selling more of your product/service. (or by increasing the price of your offer to sell less for more)
I hope this foundational information on revenue and profit is helpful!
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Producing Proud People,