The answer depends on your goals and where you are in the business lifecycle. But profit—and more importantly, profitability—determines whether a business can survive and grow over time.
To understand your business health, you need to know the relationship between revenue, profit, and profitability. Here's what each metric tells you and why it matters.
What's the difference between revenue and profit?
Revenue measures what you make. Profit measures what you keep. Revenue is the total income your business generates before expenses. Profit is what remains after you subtract those expenses.
The equation looks like this:
Total Revenue - Total Expenses = Profit
The Profit First method flips the traditional accounting formula and helps owners build truly profitable businesses from the ground up.
What is revenue?
Revenue is the total income your business generates from selling goods or services before any expenses. Add up your total sales and you have your company's total revenue.
Revenue sits at the top of your income statement and represents the money flowing into your company. Depending on what you sell, your income statement may break revenue into categories—product revenue, service revenue, and so on.
You've probably heard the saying that revenue is vanity and profit is sanity. While profit matters more for long-term survival, don't dismiss revenue entirely. Revenue reflects demand for what you sell and tracks year-over-year growth. It's an important signal—just not the only one.
What is profit?
Profit is the total amount of money your business keeps after deducting expenses. Also called net income, it appears on the last line of your income statement.
For most small businesses, profit matters more than revenue because it shows how much money you actually get to keep. Expenses include everything from production costs to operating expenses:
Costs associated with producing goods—labor and raw materials. Operating costs—rent, utilities, marketing, research, administrative expenses. Salaries, including what you pay yourself. Taxes. Interest on loans. Depreciation and amortization.
Economist Milton Friedman argued that the purpose of most businesses is to generate profit. The higher the profit, the more your business earns. Profit can be positive or negative. When it's negative, you're running at a loss because revenue didn't cover expenses.
Types of profit
Just as income statements break down different revenue types, there's more than one way to measure profit. Here's what each type tells you.
Gross profit
Gross profit is revenue minus the cost of goods sold. This includes materials and labor directly tied to producing a product. It doesn't account for fixed costs like rent or salaries for people not involved in production.
Gross Profit = Revenue - Cost of Goods Sold
Operating profit
Operating profit is gross profit minus operating expenses—rent, payroll, utilities. It represents total earnings before interest and taxes.
Operating Profit = Gross Profit - Operating Expenses
Net profit
Net profit is what you get when you subtract all expenses from revenue. This includes cost of goods sold, payroll, taxes, interest payments, and everything else. It's what your company keeps after every expense is paid.
Net Profit = Revenue - All Expenses
Some small business owners treat net profit the same as their salary. If that's you, rethink it. Business owners should do both: pay themselves a fair salary for their work and generate profit. One day you'll want to hire someone to replace yourself—and that salary needs to reflect the actual value of the work.
What's more important: revenue or profit?
For small businesses, profit is the more important metric because it shows how much money you take home after covering costs. But you shouldn't focus on profit as much as you should focus on profitability.
What is profitability?
Profitability—also called profit margin—measures your company's ability to generate profit relative to revenue. It's usually expressed as a ratio or percentage, like gross profit margin or net profit margin.
Most business owners understand the basics. If revenue covers expenses, you're turning a profit. If your revenue is $1 million and your expenses are $500,000, you make a profit of $500,000—a profit margin of 50%.
Why profitability matters more than profit
Profit alone can mislead you because it doesn't show the full financial picture. Here's an example using two companies.
Company A | |
Revenue | $4,000,000 |
Expenses | $3,600,000 |
Profit | $400,000 |
And...
Company B | |
Revenue | $2,000,000 |
Expenses | $1,600,000 |
Profit | $400,000 |
Both companies take home the same profit—$400,000. But they're not equally profitable.
Company A has to spend far more money to generate the same profit as Company B. Company B is more efficient at turning a profit. That also makes Company A more vulnerable to cost increases.
Here's a scenario where fuel costs rise:
Companies A and B spent $800,000 and $400,000 on fuel last year, respectively. Gas prices rise 10% this year. If all other factors stay the same:
Company A's costs rise by $80,000. Profit drops to $320,000. Profit margin is 10%.
Company B's costs rise by $40,000. Profit decreases to $360,000. Profit margin is 20%.
Company B is more resilient to cost changes because of its higher profit margin. Even though prices increased by the same percentage for both companies, Company B spends less on this expense—so they stay more profitable.
How to improve the profitability of your business
If you're a business owner, you care about your bottom line. Here are some proven ways to increase profitability.
Get better at cash management
Organizing expenses across multiple accounts gives you clearer visibility into cash flow management—how much you spend, how much goes to taxes, and how much you earn.
You can set up separate checking accounts for:
Payroll. Utilities. Marketing expenses. Taxes. Anything else your business needs to track.
Managing multiple business accounts for different expense categories helps you track spending patterns and identify opportunities to cut costs.
Learn how to budget
A well-planned budget helps you forecast earnings and expenses, achieve financial goals, and maintain how much cash your business should keep on hand at all times. Budgeting keeps your business profitable by preventing overspending and helping you plan for slower months.
Operate more efficiently
Increasing revenue doesn't automatically boost profitability. Operating costs, marketing spend, and raw material expenses add up. Find efficiencies in your operations. Work smarter, not harder.
If you spend a lot of time managing accounts payable or payroll manually, automate these processes. You'll save time, money, and resources.
Relay gives you 20 no-fee checking accounts1, up to 2 savings accounts with 1% to 3% APY2, 50 debit cards, and automation tools to make cash management less of a guessing game. Open your account in minutes.
Frequently asked questions
What is profit?
Profit is the money your business keeps after paying all expenses. Calculate it by subtracting total expenses from total revenue. Also called net income, profit appears on the bottom line of your income statement and represents what's left over after covering costs like materials, labor, rent, taxes, and interest.
What's the difference between gross revenue and gross profit?
Gross revenue is all the money your business brings in before any deductions. Gross profit is what remains after subtracting the cost of goods sold—like materials and direct labor. Gross profit doesn't account for operating expenses like rent, utilities, or administrative costs.
How does revenue affect profit?
Higher revenue doesn't guarantee higher profit. Revenue is the starting point, but profit depends on how efficiently you manage expenses. A business can double its revenue and still see profits shrink if costs rise faster than sales. What matters is the relationship between the two.
Is net revenue the same as net profit?
No. Net revenue is total sales minus returns, refunds, and discounts. Net profit is what's left after you subtract all expenses—including cost of goods sold, operating costs, taxes, and interest—from revenue. Net revenue sits higher up on your income statement than net profit.
Can a business have revenue but no profit?
Yes. A business can bring in revenue but still operate at a loss if expenses exceed income. This happens when the cost of goods sold, operating expenses, debt payments, or other costs consume more cash than the business generates from sales.
1 Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
2 For Relay Subscription Plans with an interest-bearing deposit account, the interest rate and Annual Percentage Yield on your account are accurate as of 12/11/2025 and are variable and subject to change based on the target range of the Federal Funds rate. Fees may reduce earnings. Starter Plan: interest rate 0.91%, APY 0.91%. Grow Plan: interest rate 1.53%, APY 1.55%. Scale Plan: interest rate 2.65%, APY 2.68%.
