Revenue vs. Income: An Overview
Revenue is the total amount of money generated from a business's primary operations.It is also called gross sales or "the top line"because it is the first line on anincome statement. It is calculated by multiplying a company's average sales price by the number of units sold.
Income is a company's totalearningsafter all expenses and earnings not counted as revenue are deducted.It is calculated by subtracting expenses, interest, cost of sales or goods sold, and taxes from total revenues.
Key Takeaways
- Revenue is the total amount of money generated by the sale of goods or services related to the company's primary operations.
- Income or net incomeis a company's totalearningsafter deducting expenses.
- Both revenueand net income are useful in determining the financial strength of a company, but they are not interchangeable.
Revenue
Revenueisthe money a company generatesbeforeany expenses are taken out.It only indicates how effective a company is at generating sales. It does not take into consideration operating efficiencies, which could have a dramatic impact on the bottom line.
Revenue can come from a variety of sources. These include (but aren't limited to):
- The sale of goods, services, and assets
- Advertising
- Licensing agreements
- Fees and service charges
- Subscriptions
- Rental income
Companies recognize and record revenue differently. As such, it isn't always the same—even for companies within the same industry. If you're unsure of how a specific company defines it, you can find out in its financial statements.
Income
Income is the earnings left afterall expenses and additional income are deducted.It is more commonly called net income because it is the net result after the deductions. There may be several line items subtracted from revenue to arrive at net income.
Just like revenue, income can be broken up into different categories—namely these two:
- Gross Income: Gross income is the total income recorded before any taxes and expenses are deducted. Gross income may also be referred to as gross profit or gross margin. It is found on the income statement.
- Net Income: Net incomeis calculated by taking revenuesand subtracting the costs of doing business, such asdepreciation, interest, taxes,and other expenses. The bottom line, or net income,describes how efficient a company is with its spending and managing itsoperating costs. This figure appears on a company'sincome statementand is an important measure of theprofitability ofacompany.
Income can be used to analyze and determine whether a company is operating efficiently.
Common financial ratios that use data from the income statement include profit margin, operating margin, earnings per share (EPS), price-to-earnings ratio, and return on stockholders' equity.
Revenue vs. Income
To really grasp how significant the difference between revenue and income can be, consider Apple, one of the largest tech companies on the market. It had a $294.5 billion difference between revenue and net income for its 2022 year. From a net sales (total revenue) of $384.3 billion, Apple deducted its:
- Total cost of sales: $223.5 billion
- Total operating expenses: $21.3 billion
- Other income (expense), net: $334 million
- Income taxes: 19.3 million
Which gave the company a net income of $99.8 billion for its 2022 year.
Can Income Be Higher Than Revenue?
In general, income can never be higher than revenue because income is derived from revenue after subtracting all costs. Revenue is the starting point while income is the endpoint. In cases where income is higher than revenue, the business will have received income from an outside source that is not operating income, such as a specific transaction or investment.
Is Revenue or Income More Important?
While both measures are important and that income is derived from revenue, income is generally considered more important. The reason is that income is profit, which shows that a business is able to cover its expenses and use that profit to grow the business and not rely on outside sources, such as debt, to continue operating. Strong revenues will indicate that a business can sell its product or service but strong profits will indicate a business is in good financial health.
What Are the Advantages of Revenue Management?
Revenue management allows a company to better manage its sales tactics, its costs, such as the need for raw materials, offer a better price point to customers, run operations more efficiently, and keep inventory slim.
The Bottom Line
There are several important financial metrics that companies report each quarter, including revenue and income. These two figures are often used synonymously because they refer to money a company earns. However, revenue refers to money earned from a variety of sources, while income is any money left over after all expenses are accounted for, including taxes and other costs.
FAQs
While revenue is the total earned from sales or other sources, income is the profit earned after accounting for all expenses. Understanding the difference between revenue vs income is crucial for making informed financial decisions, such as budgeting, investing, and pricing strategies.
Is revenue the same as income? ›
The Bottom Line
These two figures are often used synonymously because they refer to money a company earns. However, revenue refers to money earned from a variety of sources, while income is any money left over after all expenses are accounted for, including taxes and other costs.
What is an example of income or revenue? ›
Types of revenue include:
The sale of goods, products, or merchandise. The sale of services, such as consulting. Rental income from a commercial property (notice the use of “income”) The sale of tickets to a concert.
Can revenue be higher than income? ›
In general, earnings will never be higher than revenue, because revenue represents the total sales made by a company. Earnings represent revenue minus all associated costs; the take-home money for the business.
What is the difference between direct income and revenue? ›
Income is placed on the bottom line of an organisation's financial statement. Revenue is placed on the top line of an organisation's financial statement. Income is calculated by subtracting the total costs (including operating expenses administrative expenses.) from total revenue.
Do you tax revenue or income? ›
Revenues. Revenues is any income your business earns. In general, any revenue is taxable unless IRS rules specifically exclude it. Your gross revenue includes all income received from sales, after you subtract things like returns and discounts.
How do you define income? ›
Income is money or value that an individual or business entity receives in exchange for providing a good or service or through investing capital.
What are the three types of income? ›
There are three types of income- earned, portfolio and passive. There is also a small subset of passive income called non-passive income.
What is revenue in simple words? ›
The basic revenue definition is the total amount of money brought in by a company's operations, measured over a set amount of time. A business's revenue is its gross income before subtracting any expenses. Profits and total earnings define revenue—it is the financial gain through sales and/or services rendered.
Are profit and income the same? ›
Profit is calculated by deducting expenditures from revenue, whereas income is calculated by deducting all expenses spent by a firm. Profit is the difference between how much money is spent and earned in a specific time period, whereas income is the actual amount of money earned in that time period.
Revenue is the money a business earns by selling a product or service, and profit is the money your business keeps after accounting for all the expenses involved in generating that revenue.
Is it better to increase revenue or profit? ›
Both revenue and profit are essential to understand and track, but profit provides a more complete picture of a company's financial health. Increased revenue is generally achieved through expansion and scaling, while higher profits are reached through optimization.
How is revenue calculated? ›
Revenue (sometimes referred to as sales revenue) is the amount of gross income produced through sales of products or services. A simple way to solve for revenue is by multiplying the number of sales and the sales price or average service price (Revenue = Sales x Average Price of Service or Sales Price).
Is revenue better than income? ›
Although both metrics play a vital role, income is often considered more significant than revenue since it represents a business's profit. It indicates the company's ability to cover all its expenses and further invest the profit into the business without relying on external funding like loans to keep it afloat.
What is an example of income and revenue? ›
For a business, revenue is all of the money it has earned. Income/profit usually incorporates other facets of a business. For example, net income or incorporate expenses such as cost of goods sold, operating expenses, taxes, and interest expenses.
What is revenue vs net income? ›
A company's gross revenue is its revenue before expenses. A company's net revenue represents the total amount it makes from its operations minus any adjustments such as refunds, returns, and discounts. A company's net income is its profit after deducting expenses and other allowances.
Is net revenue the same as net income? ›
A company's net revenue represents the total amount it makes from its operations minus any adjustments such as refunds, returns, and discounts. A company's net income is its profit after deducting expenses and other allowances. It is the total amount of profit or loss after expenses.
What is revenue also known as? ›
Revenue (also referred to as Sales or Income) forms the beginning of a company's income statement and is often considered the “Top Line” of a business. Expenses are deducted from a company's revenue to arrive at its Profit or Net Income.
Is revenue an asset or income? ›
Service revenue is a business's earnings from providing a service to its customers. Therefore, service revenue is categorized as an income or revenue rather than an asset and belongs on the income statement rather than the balance sheet.
Is in income the same with profit or revenue? ›
Profit simply means the revenue that remains after expenses; it exists on several levels, depending on what types of costs are deducted from revenue. Net income, also known as net profit, is a single number, representing a specific type of profit after all costs and expenses have been deducted from revenue.
