What is the difference between turnover in business, revenue, income and profit

Beginning entrepreneurs are often confused about these concepts. Especially like to confuse income and profit, those who have seen various courses and training courses, where they promise to bring in a short time to the income, for example, a million dollars. As a rule, they talk about the income part of the business, and the young entrepreneur identifies it with profit, which misleads himself. Today in the blog of LLC «ElectraQuix» we will talk in simple and clear language about the difference between income and profit, what turnover and revenue are, and what they have in common.

What matters is what remains

Terms such as family income or personal income are well known. This can include wages, rent, interest from bank deposits, etc. Essentially these terms mean how much money you or your family earns and how much you can spend on your needs. This misleads many people into thinking that business income is also the money they can put in their pockets. However, this is not the case at all. What matters is not how much you earn, but how much money you have left over.

This is very clear in entrepreneurship: it doesn't matter what your business revenue is, it matters how much net profit you have left in the end. The reason is that in addition to the income part, there is also an expense part. And it is everywhere: both in personal finance and in business. If not to complicate and not to go into minor nuances, turnover, income and revenue are identical concepts. That is, they are synonyms. However, provided that the main and only source of earning money for the company is the sale of goods and services (we take a simple scheme of money receipt on purpose to make it easier to understand economic concepts).

Turnover is also called gross revenue. Revenue is the amount of money a company receives from the sale of goods and services. All together we can say this: turnover, income and revenue are the amount of money in the ‘cash register’, i.e. all the money received by the company during a certain period.

What can you put in your pocket?

To determine profit, you must subtract the expense side from the income side. Expenses include everything that the entrepreneur has to pay for:

The cost of purchasing the goods;
The cost of delivery of goods;
The cost of renting a shop, warehouse, etc.;
Costs of advertising and promotion of the company;
Payment for the use of the internet, telephone, utility bills, etc.

The money that remains after subtracting all expenses is called operating profit. This is the amount of money a business owner has before taxes. What is left after all tax payments is your net profit.

How much is net profit as a percentage of revenue? Depends on the field of activity, but on average it is about 10-15%. Thus, if you come out conditionally on the income of one million dollars, the net profit will be 100-150 thousand dollars. However, all this amount you will not be able to put in your pocket. After all, for the development of business requires investment. If you take all the profit or most of it to yourself, you will destroy the business with your own hands.

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