Revenue vs Income
As a business owner or marketer, you might be familiar with the terms “revenue” vs ” income “ interchangeably when discussing a company’s financial performance. Although revenue and income share certain similarities, they are not identical.
What is the difference between revenue & income? It’s easy. Revenue is the amount of money a business entity earns from the product or service it sells. Income is the remaining amount of money that a company can earn after all the expenses and costs are taken into consideration. It is quite important to understand the difference between revenue and income can make or mar a correct appreciation of the health of a company as well as the right business decisions.
In this article, you will learn the differences between revenue vs income and what they mean in terms of marketing and business strategies.
What does Revenue mean?
Revenue is one of the financial measures that define sales and the future growth of the company. The accounting concept of revenue in accounting is based on the principle that revenue is recorded as soon as the sale is made regardless of receipt of payment. There are primarily two types of revenue: The targets cover two aspects of revenues; gross revenue and net revenue.
Gross sales revenue is the total of all types of income in a company that an organization realizes from the sale of products it sells to customers or even from rendering services. Net revenue refers to gross revenue less any deduction such as rebates, refunds, returns, or any additional expense associated with the type of revenue in discussion.
Various Revenue Categories
There are two types of revenues gross revenue and net revenue. Total revenue is the gross monetary income from both sales of goods and services done by a company excluding other expenses.
However, net revenue is more of its total revenue figure minus sales promotion volume discounts refunds, or returns associated with generating such revenue.
Examples of Revenue
The potential income sources in business may only vary depending on the type of business and form of business. Whereas in retail income is received by selling products that are merchandise and in service organization income is received from providing services to the clients.
These include revenue generation from licensing, affiliation, and renting of places for business operations. An example could be an organization producing software earning revenue through selling its software to other organizations, or a landlord earning money through rental services.
They need to also grasp the fact that revenue may not equal the measure of a company’s profitability. This means that, even with high revenues, the company may not be booting high profit since it also has high expenses.
Therefore company must evaluate the inherent cost associated with sources of revenues. Any business that lacks adequate knowledge in a particular industry can gain a variety of implications as pertains to pricing arrangement and optimality, operations, and overall financial health.
What exactly is income?
Income therefore refers to the amount of money that one is capable of making after deductions of all the expenses as well as tax. It relates to the amount of money that an individual or firm earns upon deduction of the costs of production and other taxes. It remains one of the key financial indicators that can be used to gain insights into someone’s financial status and his or her capability to generate income. When they are earned, income is recognized in accounting irrespective of when they are received.
Various Income Categories
The two categories of income are gross income and net income. In the same way, gross receipts or total money which is earned before any deduction is termed gross income while the remainder of the money that remains after all the expenses, taxes, and levies have been paid is termed net income. Net income is also referred to as profit or earnings in some cases as well. Click on a given link to see the differences:
Examples of Income
A salary is a type of remuneration along with wages, tips, commissions, bonuses, as well as investment income. Everyone should have more than one stream of revenue, for example, salary, stock, or things like visiting houses.
Make sure to monitor the amount of money you are making over the months. Possessing this information is going to allow you to make better decisions on how to allocate your funds, what to save for, and some general financial planning.
The fact should also be noted that incomes depend on many factors, such as economic conditions, tax legislation, and trends in the industry. Companies must have relevant information concerning the industry or market in which they operate and make necessary amendments to their revenue strategy.
By now you understand that revenues are the total amount of cash a firm earns from sales, while income is the revenues less admissible expenses. Additional details to remember are as follows:
Comparing Earnings to Profits
The key difference between revenue and income is that the former is a financial venture’s total output of both services and goods while the latter is the total monetary gains a company earns in a certain period. A qualitative assessment of your company’s revenues and costs for its products provides a better view of its profitability. How can you distinguish between your company’s revenue and income? Sales revenue is arrived at through the combination of the amount charged for a product or service and the total quantity sold. Profit is arrived at by subtracting the aggregate of total expenditure and tax from the total accrual.
High income, but costs that occur in tandem with it means that there will be no profit for the company. For this reason, companies have no choice but to look at their earnings.
Yet, other factors include Profits and Earnings of the company especially for the shareholders and investors in the company. These measurements they used to evaluate the financial position of a company and the decision of investment.
Sales are normally recorded on the head of the income statement. The total amount is close to the last figure, often referred as to the “bottom line.” Thus it can be said that revenue is a higher category of which income is a subset.
Factors That Impact Earnings Compared to Revenue
Several factors, some of which are outside the company’s control, can impact a business’s revenue and income. Here are some instances.
Outside influences
The environment, competition, and the behaviors of the customers may influence a company’s gains and revenues. For instance, during a particular period, consumers may be forced to scale down their expenditure due to factors such as recession thus resulting in businesses experiencing a dent in their sales and hence their profits.
Likewise, increased competition in the market may force companies to lower their prices in the market resulting in a decrease in revenue and earnings.
Inside influences
Many factors like pricing strategy, operational efficiency, etc. play a significant role in influencing the company’s revenue and income.
Organizations with a good pricing strategy can obtain consumers and magnify their revenues. For instance, the use of a higher price can help a company increase its revenues and profits by targeting customers who are willing to spend a little more on quality goods and services.
Optimization of processes has a significant influence on revenues and income. Lean manufacturing practices or technology can be used in an organization to cut expenses on operations and increase profitability.
There are certain forces outside and within business organizations that may affect its profits or sales. So they can overcome all the disadvantages and at the same time, ensure that they make good money and high earnings, too.
Does Revenue hold more significance than Income?
Although the two are measures, income is often considered more significant than revenue since it shows how much started earning.
This affirms the company’s ability to generate sufficient cash flows to finance its expenses and invest all its profits without incurring debts to continue with its operations.
While high revenues can indeed help a company market its goods or services, high profits probably merely indicate the company’s solvency.
Instances of Revenue Compared to Earnings
Revenue and income play a crucial role in both business and personal finances.
Take into account the following instances:
Examples from the Real World
Below are actual instances of what revenue versus income means in practice:
- Apple Inc.: was able to generate $274.5 billion of its revenue in 2020 from its products and services. Nevertheless, $57.4 billion for the net income would comprise the company’s total earnings for that particular year but they were far from the overall operation revenues. This means that despite its higher revenues, Apple earned little profit showing that its profit margin influenced the overall revenues earned.
- A tiny eatery: A mama-and-pop store could sell $500,000 worth of food per year, but perhaps have only $50,000 remaining after expenses such as rent, remodels, and supplies are paid. In this context of analysis, it is clear that the restaurant has significant cost outlay before it can record profit given that the revenue has a higher figure compared to net income.
- An individual investor: can earn money like through dividends and the interest that their investments yield them up to $10,000 per year.
Still, when direct costs such as brokerage fees and taxes are made a deduction from the last figure, it might just be $7000. This means that even though the person incomes a lot of money, his/her precise net income is poor due to expenses incurred.”
Conclusion
Revenue and income are two basic elements of financial analysis that help to determine the financial health of an organization or a person.
While revenue is total receipts from selling goods or availing any services or from other sources, income considers profit after clearing total expenses.
Individual needs to be able to discern between revenue and income so that they can make appropriate financial decisions about budgeting, investing, and determining prices for a product or service.
Every company and citizen can increase their revenues and profits and avoid or correct errors by making proper use of such factors. Here, frequency is given to the review of revenue and income statements, and periodical consultation of specialists for financial outcome.
