What’s the difference between revenue and income?

A real-world example of revenue vs income

A well-run company will generally have both high revenue (plenty of success in sales) and well-proportioned income (ability to keep operating costs low). The optimal gross profit margin varies between companies based on the type of goods/service they sell and the cost to produce/provide it.

However, it’s easy to look at soaring revenues and presume that steadily improving net sales or a sales revenue spike alone will take care of the bottom line, without paying due attention to the type and extent of your operating costs. In the early stages of a company, in which keeping new business coming in can seem all-important, this is an easy mistake to make.

Don’t underestimate the dramatic effect that company costs can have on net income. A company that knows how to sell, but that is poorly run, can find itself with an alarming difference between the number at the top of its financial statement and the one at the bottom.

Walmart

Walmart was officially the world’s highest-earning company in terms of revenue in the year 2018, with $515 billion in total revenue.

However their net income, with all costs subtracted, was only $6.67 billion. That’s an income of just over 1% of their total revenue.

Of course, both statistics are, in a wider context, extremely healthy. Nevertheless, the disparity between Walmart’s revenue and its profit demonstrates the potential weight of  total expenses on a company’s bottom line. Highest-earning company in the world or not, it would have been disastrous for Walmart to base their forward business planning on revenue without first understanding how it related to their operating income after expenses.

To know how much they have left to invest, and to understand their approach to reducing costs, they have to understand the revenue vs. income relationship in full.

Walmart's revenue and income might be among the very biggest in the world, but the two statistics themselves are absolutely worlds apart from each other. Beware those operating costs!

Tax documents

Once you’ve subtracted all your business expenses, the income number you’re left with is still only income before tax. Unless you want to get audited, tax documents need to be down to the tee on revenue/profits.

Having an awareness of where your business sits relative to business tax requirements is an important stage in preparing financial documentation. Understanding the difference between  federal, state, and local tax requirements for your business is important. Prepare the calculation of your income and then subtract your annual income tax bill. The result will be the final picture of your net income.

Investor meetings

Investors are unlikely to be moved by reports of vast  revenue growth; it’s profit that they’ll be getting a portion of and profit they’ll care most about.

Understanding revenue-income dynamics helps demonstrate a broader understanding of operational efficiency to investors. Evidence of sustainable operations may seem like a less sexy thing to give to investors than an off-the-charts sales quarter, but demonstrating that sustainability (minimal overspend on things like rent, salaries, total sales commission, information technology, and accounting costs) is a sign of an income-focused business looking to be profitable, not one that’s simply looking to sell at all costs.

Moreover, an income-focused approach will help you avoid a fatal mistake often made by young companies: neglecting the customers you’ve already won. In SaaS, existing customers are the most profitable ones, the ones who will inflate your bottom line with comparatively little need for new expenditure from your company. Placing priority on retaining business (preserving and upgrading client/customer relationships, etc.) not only steadies the revenue ship by keeping money coming in steadily but vastly improves your long-term prospects for income and profitability. New customers, lest we forget, are more expensive than existing ones.

High revenue and high income are the targets for most businesses; depending on your company type and industry as well as cost reduction and your skill in upselling to existing clients, you might even find yourself turning high income out of relatively small revenue.

It’s ultimately a question of profitability. Whatever your product or service, and whether or not you’re ready to take on Walmart for the title just yet, properly managing the relationship between your revenue and income will result in a model of operations that is profitable.

Revenue vs. income FAQs

What is net revenue vs net income?

A company's net revenue is the money it has earned from performing its core business operations. Net income is the profit that a company has earned after covering the expenses, and taxes, and after accounting for all gains and losses.

What is operating revenue?

Operating revenue refers to the revenue generated from the company's primary business activities. Depending on the type of business, operating revenue can be generated from the provision of services or sales of products.

What is the difference between operating profit and net income?

Operating profit is the company's profit calculated after taking out the expenses but before accounting for the taxes, debt, and costs of certain one-off items. Net income, on the other hand, is the company's profit after accounting for all the expenses.