We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is the Relationship Between Revenue and Profit?

Nicole Madison
By
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Sometimes people are confused about the relationship between revenue and profit. Revenue is the amount of money a company receives from sales and other charges 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 creating a product, taxes, rent, marketing, and even payroll expenses. A company can have revenue without making a profit, but cannot have a profit without any revenue. In some cases, a company's expenses exceed its revenue, and it experiences a loss rather than earning a profit.

It is easy to think a company is making a profit if it is collecting fees and charges or selling products or services to customers. The fact that money is being passed from a customer to a business person, however, doesn't necessarily mean the business is profitable. In some cases, a company may have significant revenue but enjoy very little profit from its sales. This usually occurs because a company's expenses are so high that they make it hard for the company to earn a profit. Sometimes, however, revenues can be so low that even small expenses can eat away at the company's potential profits.

Considering an example may help to make the relationship between revenue and profit clearer. If, for example, a company specializes in selling customized lampshades, its expenses may include the costs of buying supplies and lampshades; wages; rent or a mortgage on a commercial property; taxes; advertising fees; utilities; and a wide range of other expenses. If this company sold $10,000 US Dollars (USD) in custom lampshades in a month, it may appear to earn a high amount of profit. Subtracting $8,000 USD in expenses from its sales would leave it with less of a profit, however. Its profit would be $2,000 USD in such a case.

Business owners typically strive to have both revenue and profit, but sometimes circumstances make it difficult to do so. In some cases, businesses don't sell enough to secure both revenue and profit. Often, this is not the business owner’s fault, but some entrepreneurs do make poor choices that leave them without much profit. Sometimes, a business owner’s expenses are so high that he experiences a loss; this means he not only failed to earn a profit, but he also lost money on running his business. For example, if a business owner’s revenues are $5,000 USD, but his expenses are $6,000 USD, he is losing money on running his business.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Nicole Madison
By Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like homeschooling, parenting, health, science, and business. Her passion for knowledge is evident in the well-researched and informative articles she authors. As a mother of four, Nicole balances work with quality family time activities such as reading, camping, and beach trips.
Discussion Comments
By Potterspop — On May 17, 2011

I have a friend who owns a bar/restaurant which is extremely popular. He struggled to make a living from it, despite being full most evenings. In the end his puzzled accountant did a little sleuthing and discovered the owner comping friends a little too often!

We joked for a long time that you could calculate his lost profit by the size of his friends' waistlines!

By MissMuffet — On May 15, 2011

@Penzance356 - Many people who start a business will struggle to balance the profit and revenue books quite as they would like.

The only exception may be someone who works online or as a kind of virtual distributor. My sister does both and manages to keep her overheads and outlay quite low. Even so, if you look at revenue vs profit you'd probably be surprised at how little she comes out with.

She tells me that as you develop and grow the costs rise as advertising must be maintained. You may also need to pay for extra workers to meet demands, but not make quite enough to cover that expense for a while.

By Penzance356 — On May 13, 2011

The difference between revenue and profit is something a new business owner needs to be very aware of.

I once read that it can take up to three years for a small company to get into the black. During this time the entrepreneur may not even pay themselves a salary, which would help keep revenue costs down.

Presuming that you are not paying out large salaries, is there any secret formula to increasing your profit ratio?

Nicole Madison
Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.