Before going any further in the realm of accounting in this series of blog posts, First Steps Into Accounting, we must define revenue and profit as well as make sure we understand the difference between them. People boasting their “six-figure” or “seven-figure” businesses rarely specify whether they are referring to profit or merely revenue, so let’s investigate!
In This Post
We will cover the following in this blog post:
- What Is Revenue?
- What Is Profit?
- The Difference Between Revenue And Profit
- Conclusion
What Is Revenue?
If you have followed along our blog series First Steps Into Accounting, you may recall that the income statement deals with revenues and expenses.
Revenues and net sales mean the same thing in accounting.
NET SALES = Gross sales – (Returns+Discounts).
If your first language isn’t English, do note that gross in accounting is pronounced differently from gross as in disgusting, eww. It sounds more like loss as in losing something.
I don’t know about other e-commerce platforms, but at least the WooCommerce plugin for WordPress informs numbers for gross sales, net sales, returns and discounts in the backend analytics. It is nice to fiddle around with them and get to know your own accounting basics in this hands-on way.
What Is Profit?
Gross profits take into account what sales bring in, and what expenses there were when creating products/services. What is left once the bills are paid?
GROSS PROFITS = Revenues – Cost of sales.
People most likely refer to gross profits when mentioning profits, but don’t be 100%.
The Difference Between Revenue And Profit
To rephrase, revenue deals with only selling the product itself. Revenue can tell a very impressive story, because anyone, who succeeds at marketing and selling their offerings such that they bring in 100.000 € or more when launching just one course, is good at doing business.
The problem arises when the other part of the story is obfuscated: the one about all expenses involved in bringing said course to market. It can be costly to create even one product, and so the resulting profit may not be significant at all. Once all bills are paid, profit is what remains. If a “six-figure launch” refers to profits, you should definitely pay attention to such a business owner and their boastings.
Imposter syndrome is a real thing, and common among people, who are great at what they do, but self-taught at business skills. If this applies to you, please be mindful when reading of others’ “something-figure” stuff, because it may be more facade than you could think at first. Guard your entrepreneurial heart in other words.
Conclusion
Have you mixed up these two before? It’s a bit tricky when a first language is another than English for sure!
Numbers are interesting when you understand what to look for, and what makes it super cool is when they are your very own. Reading about accounting in theory takes you only so far, so I warmly encourage you to get up close and personal with what story your sales numbers can tell you.
When is the last time you sat with your numbers? Share in the comments!
This is a blog post in our beginner-level series First Steps Into Accounting on accounting and bookkeeping.
Photo credit: Visual Stories – Micheile.
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