Understand Revenue vs. Profit to make more money
I have to say : we, finance pros, love our jargon.
The same goes for Lawyers or Doctors. And it’s completely understandable. Because that’s the way we were all taught.
Finance wasn’t made for non finance people. Law wasn’t made for non lawyers. And so on...
So today, I’ll explain the difference between Revenue & Profit in words that are easy peasy to understand.
For people not knee-deep in finance.
Let’s say you want to sell your jar of lemonade.
When you sell your full jar, that is your revenue.
To make your lemonade, you used sugar, water, lemon, and a cup. These all are your costs.
Your profit is what’s left in your jar after you removed the cost of all your Ingredients.
It is much smaller than your revenue. Profit is what you need so you can see how healthy your little lemonade business is.
Why am I bothering you with knowing the difference between revenue and profit ?
Because it can help you make MORE MONEY.
Here are the 5 essential reasons why it’s important to understand this difference.
High revenue doesn’t mean healthy business
You can end up with a global loss if your costs cover all your revenue. So focus on your profit.
Drive up your profit
Once you understand the difference between revenue vs profit, you can be better at :
pricing strategy
investment opportunities
cutting costs
Helps you get investors money
Investors use profit to measure how well you manage your business and use your resources. It shows your performance and efficiency.
Gain your ticket to sustainability
If you focus only on increasing revenue without controlling your costs, you might face sustainability issues in the long run.
Focus on profit to drive your growth
If you know which products or services are more profitable, you can focus on developing and growing these.
So, Revenue vs. Profit - easy to understand yet essential to drive your performance up.
Next time, you’ll look at your jar of lemonade a different way...
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