What is the difference between revenue and profit?

Finance / Date: 01-24-2025

Know that a company has revenue and profit and can know the differences between them, understanding their applicability and their way of controlling them. Understanding these indicators very much helps control the financial side of a business.

With those, you would be able to analyze the profitability of the business, observing in which areas its ability to bring profits and generate more equity is. Being able to notice its evolution while highlighting potential problems, adopting appropriate strategies to keep improving the business.

What is a company's turnover?

Revenue is a well-known metric, but it is still worth understanding in detail what this financial concept means.

You can understand revenue as the resources obtained by the company when it carries out its core activities. In other words: all the money collected from the sale of products or the provision of services.

Revenue is the total amount collected from the sale of goods in a store for some duration of time. It, therefore remains the primary source of income of a business. Other sources of income include investment returns but are not considered revenue.

A key piece of information regarding this concept is its use for calculating taxes. It is common for tax and contribution rates to be levied on the company's revenue or profits, rather than on all revenues .

What are the types of billing?

Revenue can be classified in several ways to better specify this indicator. Check out the main types below:

Gross

Gross revenue is perhaps the most understood and intuitive breakdown of this measurement. It basically is the summation of every sale or service the company executed in the course of the reportable period.

Gross revenue computation is actually often used as a means for an average in receipts and on how the firm is closing a deal. The formula to calculate gross revenue is as follows:

gross revenue = price of each sale or service provided x number of sales or services provided

Imagine a company that provides air conditioning installation services for R$500 and has completed 50 installations in one month. The gross revenue is R$25,000. In practice, prices may vary depending on the services and products offered, so the calculation must take these points into account.

Liquid

Net revenue, on the other hand, deducts taxes levied on this indicator and any additional expenses. Therefore, it provides a more realistic picture of the company's earnings in a given period.

These taxes may include the Service Tax (ISS), Social Integration Program (PIS) and the Contribution for Social Security Financing (COFINS). Depending on the type of company and the tax regime, there may be exemptions and reduced rates.

Tax

Tax revenue is a classification that considers all invoices issued by the business in a given period. It has this name because it represents the revenue that is presented to official bodies for calculating taxes and other charges.

Real

Finally, actual revenue is that which actually occurred in the company during the reporting period. Thus, it considers both sales and services with the issuance of invoices and those made without an invoice.

As a rule, the actual revenue must be identical to the fiscal revenue, given that companies are required to issue the document. However, there are exceptions, such as those applied to the provision of services by Individual Microentrepreneurs to individuals — although the difference must be declared.

What is a company's profit?

Now that you know what a company's revenue is, you can learn what profit is . The profit received by a company represents the value of the revenue, minus the costs and expenses of the period.

Therefore, the formula is as follows:

profit = revenue – costs and expenses

Using the example you saw before, where the revenue was R$25,000, to arrive at the profit, all you need to do is deduct all of the company's expenses. In this case, expenses related to employee payments, office rent, taxes, utility bills, travel, etc. are considered.

If they add up R$15,000 in a month, for example, the profit for the period would be R$10,000. So this is the amount that the company has free, that is, left over in cash for use according to the managers' plans.

What are the types of profit?

Just like revenue, profits can be calculated and observed in different classifications. Here are the main ones:

Gross

Gross profit is when the account only considers the direct costs of providing the service or selling the product. Therefore, you must include as a deduction the purchase of raw materials and the amount paid for production or provision of the service.

Liquid

Net profit is more comprehensive and takes into account all liabilities from the same calculation period of your business. Therefore, it is not limited to direct costs, but takes into account other expenses during the period in question.

After all, why understand the difference between revenue and profit?

Understanding the differences between revenue and profit is essential for good management, as both are the basis for decision-making in a company. Both indicators are relevant to the business, but they provide different information.

Therefore, planning must consider both data. The company needs to have a revenue forecast to be able to determine its profit margin, for example. This helps to decide on the pricing of products and services.

In this sense, prices cannot be too high, as this can drive away customers and, consequently, reduce revenue. At the same time, it is necessary to maintain a profit margin that enables the development of the business and provides returns.

After all, low prices, despite attracting more customers, can cause the company to have financial problems, reduce revenue and create debt. Therefore, the analysis of concepts is complex and requires time and care.