Why Revenue vs. Profit is Such a Big Deal?

One of the biggest problems within business is that people throw words around to try and boast their business, impress people and try and get more profit from doing so. However, there is one big problem, all it does it not tell us the truth and therefore it is creating a false representation of your business which in turn will worsen your brand image.

Revenue vs. Profit

Before I go into the main content of this post, I would like to present you with the definitions of both ‘Profit’ and ‘Revenue’ as this will hopefully make you think of the two words whilst you are reading the remainder of this article.

Revenue: The income received by an organisation because of their activities.

Profit: The difference between the income a business receives and the total costs. Profit = total revenue – total costs

The Difference Between Profit and Revenue?

Revenue doesn’t take into account any of the costs a business has, when the profit does. Read more on Wikipedia.

What Problem Am I Talking About?

Revenue. The word is used so freely to try and assess how a business is doing;

Company x have today announced that their 2009 revenue has grown to £6 million

But it doesn’t really tell us anything. Yes revenue is important, it’s important to have money coming into a business, because a business needs money to run. It also shows us how much business a company has, the more revenue the more the company is selling, the more clients it has etc. However, it has no link to how successful a business is doing. Many businesses out there will have massive revenues each quarter, but then when we look at their profits it may be nothing compared to that revenue. Profit is what shows us how well a business is doing; it proves to us how well they are using that revenue to propel the company into prosperity. Now let’s finish the above quote;

Company x have today announced that their 2009 revenue has grown to £6 million. This makes the profits for x rise to £250,000 for 2009, an improvement of £50,000 based on this quarter last year

The big ‘£6 million’ makes us think that the company has money flowing in, when the second, profit, figure shows us the real success of the company and shows us that even though they do have money flowing into their bank accounts, they also have a lot of money flowing out of the company, meaning that costs are high and profits are lower.

What I am getting is that if you want potential investors etc. to invest in your business, tell them your profits, and then tell them your revenue. Use the figures which tell more truth about your business’s you may think that it will look worse, but in the end you want someone to invest in your business who has faith in the real figures, not ones which are there just to look better.

Image – Google UK Profits by Will Lion