Revenue vs Profit – One matters and one doesn’t

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Wall Street has ingrained in us that one of the most important figures in the business world is revenue. News flash: it isn’t.

Revenue sounds great. It means you’re depositing money into your bank account, right ? That’s a good thing, right ? What could matter more ? Well, revenue isn’t what your business is actually out there to create. A business doesn’t actually care about revenue, it cares about profit. To put it simply, profit is the amount of revenue left over after expenses are taken out. So if you purchased a computer for, say, $1000.00 and sold it for $2000.00, you made $1000.00 profit. But let’s say you have a retail store, and you have overhead, and staff to pay, etc. Then it’s $1000.00 to buy the computer, staff wages to sell that computer to prospective buyers, then you have to factor in costs of overhead per item you sell, etc. It’s all numbers really, but the point is, you need to care about making a PROFIT, not simply invoicing out revenue. So many times we see large scale companies spend $1.25 just to make $1.00, and Wall Street / Bay Street rewards them because all they care about is quarterly revenue statements.

Larger companies can afford to play those games where they lose money on one venture (but still create revenue), and make bigger profit on another. The small tech entrepreneur can’t. So remember, you have to make sure you’re actually making profit when you’re selling your goods and services, not simply generating revenue.

Author

Martin Lehner

Martin Lehner is an technology professional working for an IT services firm in Whitehorse, Yukon (Canada). He has been working in the technology field for over a decade. With a degree in Business Admin and numerous industry certifications, Martin leads a team of IT professionals that provide third party support for clients. Originally starting a company to offer web development services, Martin quickly realized that clients wanted the entire spectrum of technology services. When Martin is not at work (which is not often, since his company offers 24/7 support), he is busy at home spending time with his family.

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