Revenue vs. Income

The terms revenue and income may seem similar and are sometimes even used interchangeably, but they are entirely different, and tell a different story about the company.

Revenue growth suggests an expanding business and in-demand product, but whether there is any financial gain for the business is determined by the income. Understanding the difference between revenue and income, and the picture they paint together about a company’s financial health, is vital for any business, particularly in terms of how total earnings are reported in accounting.

Let’s discuss what Revenue is first –

Revenue refers to the total earnings or deposits a company generates through its core operations. Such as sales of products or services, rents on a property, recurring payments, interest on borrowings, etc. Revenue calculations come before removing any expenses, such as discounts and returns.

For example, a financial company’s revenue is generated by interest on loans to borrowers. A software company’s revenue is earned by monthly payments they receive (Software as a service – SAS). Essentially – whatever your services are or the goods you sell – it’s the monthly bank deposits you receive for them.

Things to note:

• When a company is experiencing an increase in gross revenue or sales, it is said to have “top-line growth,” meaning it can generate sales or provide a product or service that has demand in the market.

Now what is Income?

Also referred to as “net income” or “net profit,” income is the total amount of earnings a company makes minus expenses. It is calculated by subtracting the costs of doing business, such as depreciation, interest, taxes, and other expenses from revenue.

Income provides the complete picture of cash flow for a business. Income will show you how efficient a company is running regarding spending and managing operating costs. Net-income is the measure of profitability.

You will hear of the term “bottom line” which means a company’s income after all expenses have been deducted from revenues. Bottom line growth is always considered a good thing. This is why an investor or a lender will insist on looking at your company’s revenue vs. net income before giving you money.

What is the key difference between Income and Revenue and why does it matter?  

• Revenue is the total amount of money generated by the sale of goods or services. Or any other use of capital or assets associated with the main operations of a company, and before any costs or expenses are deducted.
• Income represents the total amount of money remaining after all expenses, taxes, interest, and stock dividends have been deducted from an organization’s total revenue.

So, your goal is to increase both of these at the same time but they aren’t the same.  You can also increase your bottom line by focusing on cutting expenses and maintaining your top-line revenue.  There are many ways to slice the frog.  Enjoy the process.

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