Revenue vs Income 101, Which One is More Important?

In general, every business that is carried out must prioritize matters related to revenue, turnover, profit, and cash flow. As a business actor, more knowledge is needed. However, there are still some financial terms that are sometimes considered the same and are misrepresented.

We just call it like revenue (revenue) and income (income). Often there is a misunderstanding of these two words, many people think that revenue (revenue) and income (income) are the same thing.

In the world of accountants and the world of finance, revenue and income have different meanings. As a businessman or business actor, you should first understand the differences between these two terms.

Revenue vs Income, The Definition

Revenue is a statement relating to the finances of the overall results of the main business of products or services performed by the company in a certain period. In simple terms, revenue is the amount of money a company receives from the sale of products (goods or services) from customers and does not come from investment. In other words, revenue can be defined as the amount of net profit a business actor gets.

Read more: 4 types of market that you need to know before starting a business

Revenue is divided into two types:

• Operating Revenue

Revenue generated directly from the company’s core such as product sales or service offerings.

• Non-Operating Revenue

Revenue obtained from additional sources of income (secondary sources) such as bank deposit interest, share profits, and other business activities. The following is a simple way of calculating a company’s revenue.

If your company sells goods or products, then:

Revenue = The number of items sold multiplied by the average price of the goods

If your company offers services, then:

Revenue = Number of subscribers multiplied by the average price of the service

In addition, there are several things that affect revenue, such as:

1. There is a return and refund service
2. Interest rate
3. Currency exchange rates
4. Prices for products and services
5. The variety of products and services offered.

Income is the amount of money earned from sales within a certain period of time which has been reduced by the cost of goods sold (COGS), expenses and other costs. Income usually focuses more on net income.

Here is a simple way to calculate income

Gross profit

GP = Total Gross Profit: Total Sales or Revenue

Net profit

NP = Total Net Profits: Total Sales or Revenue

Difference between income and income

In economics broadly, income is often defined as income. However, in accounting the definition of income is different from revenue. In other words, we can get income from excess revenue over costs that can no longer be used to bring future income gains (expired cost).

We can conclude that income is net income or net profit from the results of operations after deducting expenses, while revenue can be defined as gross income or gross profit from the business that has not been deducted by expenses. Revenue is often referred to as total sales turnover.

Read more: Types of account receivable and why they do matter for your business

Differences by source

Revenue is not only obtained through sales of companies, but also returns or interest from deposits and investments. All of that is included as a source of revenue or company revenue.

Meanwhile, the income only comes from the business results. The results of the company’s sales in the form of products or services will be calculated as a whole and that value is the company’s income.

Difference based on how it is calculated

To calculate revenue, a company only needs to add up all the cost components or revenue components. It is different from calculating income which has two methods, namely gross profit and net profit.

The way to calculate gross profit is to reduce revenue with COGS or Cost of Goods Sold. For net profit, the calculation reduces the total gross profit with the indirect costs associated with production activities. In general, these indirect costs include promotional costs, taxes, and other costs so that these goods or services can be widely accepted by consumers.

Which is more profitable between Revenue or Income in terms of investment?

When the amount of revenue and income of a company is an important consideration for investors, which of the two is more important? We can see that the value of income is much better to consider if we compare it to revenue. When you start investing, the value of shares will increase, so the company’s income value will also increase.