Revenue is the total income a business earns from sales before subtracting expenses. Profit is what remains after the business deducts those expenses from its revenue.
High revenue does not guarantee profitability. According to the Federal Reserve Bank’s 2026 Main Street Metrics report, only 47% of surveyed employer firms were operating at a profit at the end of 2023. Sales can rise as costs increase, leaving the business with less profit or a loss.
This article covers how revenue and profit are calculated and what each metric shows about a business’s financial performance.
What is revenue?
Revenue, often synonymous with sales, is the total amount a business earns from selling goods or services before any expenses or costs are deducted. Its basic formula is:
Revenue = Number of units sold × Price per unit
Revenue appears first on a business’s income statement, which is why it is called the top line. The income statement then lists expenses and subtracts them from revenue to calculate profit.
Tracking revenue over time shows whether sales are growing or declining. Owners, lenders, and investors compare revenue with profit to evaluate how much sales activity a business converts into earnings.
Money earned outside regular business operations appears farther down the income statement as non-operating income. Counting rental or investment income as top-line revenue can overstate sales performance and mislead stakeholders.
5 revenue classifications
Businesses use five classifications to describe their revenue streams:
Gross revenue
Gross revenue is the total income a business earns before deducting returns, discounts, or expenses. For example, a shop that sells 200 shirts at $30 each records $6,000 in gross revenue.
Net revenue
Net revenue is gross revenue minus allowances, discounts, and customer returns. It doesn’t account for operating expenses. For example, subtracting $300 in returns and $200 in discounts from $6,000 in gross revenue produces $5,500 in net revenue.
Operating revenue
Operating revenue comes from a company’s main business activities. It differs from operating income, which accounts for the costs of running the business. For example, the money a bakery earns from selling bread is operating revenue.
Non-operating revenue
Non-operating revenue comes from activities outside a company’s primary business. It appears separately from operating revenue on the income statement. For example, $500 in interest earned on a retailer’s savings account is non-operating revenue.
Recurring revenue
Recurring revenue comes from subscriptions or other ongoing payment agreements. Store owners can track it as monthly recurring revenue. For example, a coffee subscription with 100 customers paying $25 per month generates $2,500 in recurring revenue each month.
What is profit?
Profit is the money left after a business subtracts all expenses from its revenue. Those expenses include the cost of goods sold and the cost of running the company. A company can generate more revenue and still earn less profit if production costs rise faster. For example, a supplier price increase can reduce profit unless the business raises prices or reduces another expense.
Profit provides money that a business can reinvest in growth. Sustained profit also creates a buffer when sales fall or expenses rise. This makes profitability a better measure of financial strength than sales volume alone.
At its simplest, profit uses this formula:
Profit = Total revenue − Total expenses
For example, a business with $50,000 in revenue and $38,000 in expenses earns $12,000 in profit.
In a 2025 Shopify survey, 42% of store owners cited ensuring profitability as their top business goal. According to the same survey, 79% of store owners use profits to self-fund their growth. Those earnings let owners expand using money the business has already generated.
4 profit classifications
Analyze profit at different levels depending on which costs you subtract from revenue:
Gross profit
Revenue minus cost of goods sold (COGS), or the cost of sales, is gross profit. It is the first and most basic measure of profitability, showing how efficiently a company produces or delivers its products or services. Gross margin is a company’s gross profit as a percentage of sales or revenue.
Operating profit
Gross profit minus operating expenses or overhead—costs not directly attributable to production, such as office rent, salaried staff, and utilities—is a company’s operating profit or income. Analysts evaluate operating profit as a profit margin by expressing it as a percentage of revenue.
Net profit
Net profit and net income are the same thing. Both terms refer to a bottom-line figure: the amount left after a company accounts for all income and expenses.
Net profit equals operating profit plus non-operating income, minus non-operating expenses and taxes. It shows how much a company earned during the reporting period.
Public companies also report earnings per share (EPS), which expresses net income on a per-share basis.
Other profit
Other profit measures include pretax profit, which is profit before deducting income tax payments; earnings before interest and taxes (EBIT); and earnings before interest, taxes, depreciation, and amortization (EBITDA).
These can offer insights into a company’s performance. Although financial professionals often use them, they don’t conform to generally accepted accounting principles (GAAP).
Revenue vs. profit: key differences
Revenue is the money a business earns before expenses, and profit is what's left after expenses.
According to a 2025 Shopify survey of store owners, less than half track profit margin, compared with 77% who track revenue. Tracking both shows whether higher sales produce more earnings.
| Comparison | Revenue | Profit |
|---|---|---|
| Meaning | Income before expenses | Income after expenses |
| Basic formula | Price x Sales volume | Revenue − Expenses |
| Expenses deducted? | No | Yes |
| Income statement | Near the top | Several levels below |
| Measures | Sales activity | Earnings |
Revenue feeds every profit calculation. Higher revenue can increase profit when business expenses grow more slowly. If expenses rise faster than sales, profit falls. An extra $10,000 in revenue paired with $12,000 in new expenses reduces profit by $2,000.
Medical apparel brand FIGS uses Shopify as its ecommerce platform. Its 2025 Form 10-K reported $631.1 million in net revenue and $34.3 million in net income. Revenue increased by 13.6% from 2024. Operating expenses increased only 2.2%, allowing profit to grow faster than sales.
Revenue vs. income vs. earnings vs. sales
Sales are the value of goods or services sold to customers. Revenue is the total amount a business earns through its normal operations before deducting expenses. At retail and ecommerce companies, sales can make up most or all revenue, so the terms may appear interchangeably.
Income and earnings describe profit after specified costs have been deducted. The exact meaning comes from the modifier attached to the term.
| Term | Basic meaning | Common presentation |
|---|---|---|
| Sales | Value sold to customers | Gross or net sales |
| Revenue | Amount earned from operations | Top of income statement |
| Income | Revenue after specified costs | Gross, operating, or net |
| Earnings | Another term for profit | Net earnings or EPS |
Gross sales record customer purchases at their original prices. Net sales subtract returns, discounts, and allowances. When a product company reports net sales as its only operating revenue, net sales and revenue refer to the same figure.
Income appears at several levels:
- Gross income subtracts the cost of goods sold from revenue.
- Operating income subtracts operating expenses from gross profit.
- Net income accounts for non-operating items and income taxes.
Earnings often means net income. Public companies also report earnings per share (EPS), which divides earnings available to common shareholders by the basic weighted-average number of shares outstanding. A modifier such as “operating” changes which costs the earnings figure includes.
Mattel, for instance, reported $5.35 billion in net sales in its 2025 Form 10-K. The company recorded $546.4 million in operating income, $397.6 million in net income, and $1.24 in diluted net income per common share.
In this filing, net sales represent revenue from customers. Operating income is profit after operating costs, and net income is the company’s final profit after non-operating items and taxes. Diluted EPS expresses those earnings on a per-share basis.
How to calculate revenue vs. profit
Profit calculations move through the income statement from net revenue to net profit. At every step, the business subtracts another category of costs:
- Calculate net revenue
- Determine cost of goods sold
- Calculate gross profit
- Add up all operating costs
- Calculate operating profit
- Add non-operating income and expenses
- Compute taxes
- Calculate net profit
1. Calculate net revenue
Add gross sales for the reporting period. Then subtract discounts, customer returns, and sales allowances.
Gross sales − Discounts − Returns and allowances = Net revenue
Shopify’s finance reports show gross sales, discounts, returns recorded as sales reversals, and net sales in one view.
2. Determine cost of goods sold
Cost of goods sold (COGS) is the direct cost of the products sold during the reporting period. It covers inventory purchased for resale or the costs assigned to manufacturing finished goods.
Beginning inventory + Purchases + Production labor + Manufacturing overhead − Ending inventory = COGS
Manufacturing overhead may include:
- Factory rent
- Production utilities
- Equipment depreciation
- Indirect production labor
- Equipment maintenance
In Shopify, the Cost per item field records what a product or variant costs the business. Shopify’s profit reports use this amount to calculate gross profit. Record a separate cost for every product variant.
3. Calculate gross profit
Subtract COGS from net revenue to calculate gross profit.
Net revenue − COGS = Gross profit
A retail example in IRS Publication 334 follows the same sequence. It subtracts returns and allowances from gross receipts to calculate net receipts, then subtracts COGS to calculate gross profit.
Once you record cost per item, Shopify’s profit reports calculate gross profit and margin by product, product variant, and point-of-sale location.
4. Add up all operating costs
Operating expenses cover costs that are not included in COGS. Add these expenses for the same reporting period.
Rent + Payroll + Marketing + Other overhead = Operating expenses
Manufacturers count factory overhead in COGS. Office rent and administrative payroll are operating expenses. Separating the two prevents the business from counting a cost twice.
5. Calculate operating profit
Subtract operating expenses from gross profit. The result is profit from the company’s main business operations before taxes and non-operating items.
Gross profit − Operating expenses = Operating profit
6. Add non-operating income and expenses
Add income earned outside the company’s main operations, then subtract non-operating expenses. Interest earned on a business account is non-operating income, for example. Interest paid on debt is a non-operating expense.
Operating profit + Non-operating income − Non-operating expenses = Pretax profit
7. Compute taxes
Income taxes apply to taxable income, which can differ from pretax accounting profit. For US C corporations, IRS Publication 542 applies a flat 21% federal corporate income tax rate.
Taxable income × 21% = Federal corporate income tax
State taxes and tax credits can change the final amount.
This information is for general educational purposes and is not tax advice. Consult a qualified tax professional about calculations and filing obligations for your business.
8. Calculate net profit
Subtract income tax expense from pretax profit to calculate net profit.
Pretax profit − Income tax expense = Net profit
Net profit and net income refer to the same figure. It’s the amount earned after the business accounts for all income and expenses.
Revenue vs. profit FAQ
Is revenue the same as profit?
Revenue and profit aren't the same. Revenue is the amount a business earns from sales before subtracting expenses; profit is what's left after accounting for those expenses. On the income statement, revenue sits at the top and profit at the bottom, since every expense in between reduces the top-line number before it becomes the bottom-line one.
Is revenue money in or out?
Revenue is money earned by a business, so it is generally considered money in. Under accrual accounting, a company can record revenue as soon as it completes a sale––even before the customer pays––so revenue reflects money earned, not necessarily cash in the bank.
Is revenue or profit more important?
Revenue and profit answer different questions. Both matter, but profit is the stronger measure of financial sustainability. Revenue shows how much the business sells. Profit shows whether those sales generate more money than they cost. A business with rising revenue but shrinking profit is selling more while keeping less of it.
What is a good revenue-to-profit ratio?
There's no single good revenue-to-profit ratio—it depends heavily on industry, business model, and growth stage, so comparing it to a fixed benchmark can be misleading. Businesses track profit margin more often than a revenue-to-profit ratio. Calculate net profit margin by dividing net profit by revenue and multiplying by 100.
Is revenue 100% profit?
Revenue equals 100% profit only when the business has no expenses at all, which is rare. Most businesses subtract cost of goods sold and operating costs from revenue before arriving at profit, so revenue and profit are rarely the same figure.
