There are endless discussions on the topic of profit and revenue. But Is revenue or profit more important?
Revenue wins out because it keeps a company operating in the long run (annually). Revenue is what helps keep a company moving forward every year, which can help with long-term planning or growth.
In this article, I will discuss the differences between revenue and profit. Along with that, I will go over why revenue matters more than profit for any type of business.
- What Is Revenue?
- What Is Profit?
- Why Is Revenue The “Top Line”?
- Can Higher Revenue Mean More Costs?
- Why Does Revenue Stand Out More Than Profits?
Is revenue or profit more important?
Revenue wins out because it keeps a company operating in the long run (annually). Revenue is what helps keep a company moving forward every year, which can help with long-term planning or growth.
What is revenue?
Revenue is money earned from the products and services a company offers. It can determine how effective a company can be with its marketing efforts.
The money accounts for everything earned before taking out expenses, payroll, and taxes. For example, if a company earns $400,000 a year, that’s the total amount of revenue made for the business.
What is profit?
Profit is any money leftover after paying expenses for your revenue. Whatever money is leftover can go into the following areas:
- Keep it in the business for short-term cash reserves
- It’s reinvested for future business growth
- It’s distributed to a company’s shareholders (if it’s a public-traded company)
For example, if a company earned $400,000 a year, and its total expenses add up to $90,000, there’s $310,000 leftover in profit. Reviewing those figures, that’s pretty good for a profitable business.
What is the difference between revenue and profit?
- Revenue is how much you earned before deducting all of your business expenses (the top line). Profit is how much you keep after paying all of your expenses (the bottom line).
Why is revenue the “top line”?
As mentioned before, revenue is all of the money earned in a business. The higher the amounts, the better it can be for a company to operate.
As a business owner, you have the ability to determine where the revenue is going into. But at the same time, you have a lot of responsibilities as well.
Where you distribute it can determine how your business spends on certain things. If it’s going toward higher expenses, that may mean lower profit in the end.
Can higher revenue mean more costs?
Technically, that can mean more operating costs for a company to handle. So again, there’s a possibility it can mean lower profits.
However, a business can still be profitable in the long run and remain successful. If a company is good at managing costs against revenues, the better chances it will have of earning more money (or more profitable).
Apple’s financial statement
One of the largest tech companies, Apple, brings in a lot of revenue each year. In the chart listed below, their revenue keeps going up as each year goes by.
While at the same time, the costs of operating the business rise as well. Despite rising costs and lower profits on an income statement, Apple still remains a profitable company.
According to the Fortune 500 list, Apple was listed as one of the most profitable companies in 2021. Despite their numbers, Apple still remains at the top of the list.
Here’s a copy of Apple’s most recent financial statement (June 2022). The following is a screenshot of their earnings and operational costs.
Why does revenue stand out more than profit?
Revenue is all about keeping a business operating each year. If you’re a long-term planner, you want to keep making more revenue for the next five-ten years (or maybe longer).
If you’re the sole business owner, you have more control and say on where the money goes. To put it another way, how will the money be spent within the organization?
On the other hand, profit is focused more on the short-term (making money for you to keep). However, it can be used for long-term planning as well.
As listed out earlier, it can be reinvested back into the business for future growth. Keeping businesses growing is something entrepreneurs always do.
If your business keeps earning revenue (and more of it), the longer it stays operating. It’s another reason why revenue continues to be known as the top line of business.
Final Words
In the long haul, revenue matters more because it keeps a company planning for the long term. If you’re more concerned about the growth in the next 5-10 years, revenue is something you’re focused on today.
Also, it can determine how effective they’re at selling and marketing their services. So that can play into how they market their services overall.
Both revenue and profit are equally important, but it’s revenue that keeps a business moving along. Without any revenue, how can any business move forward? There’s no purpose to running a business at all.
Your Turn: Do you think revenue is better for long-term business growth?
I would like to get your thoughts on this topic. Which one do you believe is more important- profit or revenue?
Do you find yourself to be a long-term planner when it comes to revenue? Or are you more concerned about earning profit today?
Do you agree that revenue is essential to keeping a company going forward? How important is it to earn enough revenue to make a profit?
Feel free to share your thoughts by leaving a comment below. I look forward to reading your responses, and I’ll gladly respond promptly.
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Eric is the owner and chief editor of notimekillers.com. He takes great pride in helping people manage their time and grow their businesses. Eric is a firm believer in financial and time freedom, as he believes in financial independence and taking ownership of your time. “Time is your most important asset. It can be your best friend or worst enemy. How you use your time can shape the future you desire to have.” In his leisure time, Eric loves to write and read whenever possible. He enjoys going for long walks outdoors while doing in-home workout videos every week. You can also connect with Eric via LinkedIn.
Nice breakdown of the topic, and a good explanation of revenue and profit. Profit (or loss) can be a roller coaster ride, but consistent revenue is the key, as you have stated.
I remember working on marketing graphs where we focused on marginal income with increased revenue. Sometimes we would take jobs with very little net profit just to keep the revenue coming in.
When the money stops flowing, then everything spirals down. Great analysis!
Hi Larry,
Both profit and revenue are not easy to obtain. If you do not know how to manage a business effectively, it can be very challenging to move forward.
Your experience with marketing graphs is a great explanation. The jobs you took on showed that profit can be much more difficult than with consistent revenue.
When the money stops coming in (or no cash flow), that’s a big problem. So that’s something all of us want to avoid in business.
Thank you very much for sharing your thoughts- they’re greatly appreciated.