In this post, you will understand what the concepts differ, how to calculate them and how to improve your results in these aspects. Continue reading and find out what to do to boost your sales, stand out among your competitors and achieve success!
Why understand the difference between profit and revenue?
Did you know that a company can have very high revenue and very little profit? So how can someone else earn less and make more profit? Everything will depend on business expenses, and this relationship is crucial to success.
Therefore, the best way to promote consistent and sustainable financial growth is by conducting effective management. Therefore, understanding the differences between profit and revenue is considered the starting point to avoid extremely unpleasant situations.
Therefore, separating these factors will help you avoid falling into the illusion of high revenue, which is not always synonymous with everything going well. After all, the costs that the business has to maintain activities directly influence cash flow.
Therefore, understanding everything about profit and revenue is important to know if the business is really growing, or if it will be necessary to adopt a strategy. Above all, it helps to organize management and anticipate actions to enhance results.
What is billing?
Simply put, revenue corresponds to how much your company earns from the sales of products and services in a given period of time. In the case of companies, the taxes paid affect the business’s revenue.
It is one of the most important elements of financial planning and accounting for a business. It represents, directly, how much the company sold during the period, without discounting fixed and variable operational costs.
How to calculate revenue?
Calculating revenue is very easy to do, even simpler than calculating your profit. You just need to multiply the price of your products or services sold by the quantity sold, defining a period of time as the basis for the calculation.
If you negotiate more than one item, just add the revenue for each one to arrive at the total value for the period. For example, if your store sells cakes for R$30 and, in the month, it sold 250 items, this means that your revenue in that period was R$7,500.
Although it is a flexible calculation, the most common is to do it monthly, creating a data history. By controlling this result every month, it is possible to make quarterly, half-yearly or annual comparisons and have a comprehensive overview of the business.
It’s interesting to find out your income so you can create goals for the future. But beyond that, it’s important to know how much profit you made from your sales. This way, you will understand exactly how your business is performing in the market.
What is profit?
Unlike revenue, profit not only considers the value of your sales, but also the costs of your business. It then corresponds to how much less the company invoiced for expenses in a given period, such as a month, a semester or a year.
In other words, this value indicates how much available cash you will have to use. In other words, it is what is “left over” from your revenue after you pay all the company’s costs, considering fixed and variable expenses related to operations.
How to calculate profit?
To calculate your business’ profit, you need to know your revenue, as well as your company’s fixed and variable costs. Furthermore, it is possible to calculate both gross profit, which corresponds to the most general profit, and variable profit, which is the real income of the business.
For the first case, you must apply the following calculation:
Revenue for the period – variable costs for the period = gross profit
In the case of net profit, the calculation is a little more complex, but nothing too difficult. To find the result, apply the following formula:
Revenue – (fixed costs + variable costs + taxes) = net profit
Fixed costs are those that do not change from month to month, such as spending on management systems and employee salaries. Variables are those that change every month or unforeseen events, such as a last-minute renovation.
Returning to what we said at the beginning of the post, as calculating profit involves subtracting costs, having high revenue is not a guarantee of having good profitability. Therefore, it is important to also keep an eye on your company’s expenses, monitoring each expense promptly.
How important is it to find ways to increase the company’s profit?
Obviously, making improvements to your business is essential to generating profit and getting more money into your cash flow. However, this is not the only reason to implement changes in the cost and sales structure.
Such care helps your company become more efficient in management, increasing its competitiveness in the market . This means that it has enough profit to invest and can stay ahead of the competition. Therefore, thinking about profitability affects both your well-being in the present and your existence in the future.
How to improve your business’s profit and revenue?
Now that you understand the concept and the difference between profit and revenue, it is essential to know what to do to increase your results.
These are essential commercial strategies to improve your business, increasing sales volume and, consequently, your profits. We have put together valuable tips for you to apply to your business and achieve greater profitability from sales . Check out!
Make a plan
As we have seen, profit and revenue are elements that need to appear in your financial planning. You must record the results each month to make comparisons between periods and have clarity about how your business is doing.
This gives you more tools to make accurate planning for your company. When planning, it is important to define the metrics that will be considered in your evaluations and look at your financial history.
Look at past mistakes and what worked and generated profits in other months. The idea is to replicate what worked and avoid repeating what caused losses, in addition to seeking innovations to continuously improve your processes, generating even better results.
Cut expenses
If the profit calculation considers business costs, to increase this index, it is worth reviewing your expenses and trying to cut what is extra. For this, financial planning is essential. With it, you can have a clear view of all costs and then decide what can be cut.
At the same time, there is no point in cutting essential expenses that will bring more loss than profit. So, evaluate this aspect carefully and talk to the team to identify if any system is not being used and reduce expenses without compromising quality and the customer experience .
Set objectives and goals
Goals guide your strategies. With a goal, you can think of creative ways to achieve them. Therefore, based on the analysis of your current profit and revenue results, evaluate what you can optimize and create realistic goals for the next period.
This way, it is possible to create a consistent growth process for your business and improve your results, even if gradually. Therefore, establishing goals for the team and providing appropriate support is important to adjust services and increase revenue.
Research the market and competitors
To understand how your segment is doing and whether your solutions are attractive to consumers, it is essential to monitor the market. By understanding the reality of the niche, you will have a better basis to make important decisions regarding revenue and profit.
Furthermore, be sure to monitor your direct and indirect competitors, as this will allow you to better understand how your business is doing — especially in terms of differences in relation to other stores, which will help to improve it and make it more attractive to customers.
Invest in strategies to increase the average ticket
The average ticket is an indicator that represents the average revenue value for each sale, considering a reference period. Therefore, adjusting the purchase value of each order is a great way to increase your revenue and profit , in a practical and effective way.
To do this, you might employ the following strategies:
Through these tips, you can get customers to make more purchases and increase spending in your business. Therefore, be sure to apply each of them in your establishment.
Correctly price products and services
Pricing is a fundamental part of maintaining the financial health of the business and increasing revenue and profitability. Therefore, it is important to pay attention to this factor and use good methods to price the items sold.
Furthermore, although promotions are a great attraction for consumers, it is important that pricing is carried out correctly. This way, you avoid losses and still maintain interesting values for the customer, influencing their purchasing decision.
Invest in marketing
Marketing strategies , especially digital ones, are extremely important to give your business greater visibility. Above all, they help to optimize your relationship with your target audience, facilitating the process of attracting customers, conversion and loyalty.
Use technology
The use of technology is also an excellent ally to increase your vision about the business and understand what is preventing you from making a profit. For example, through technological solutions, it is possible to optimize your cash flow entries and rely on reports.
These, in turn, will give you greater knowledge about your company’s costs and revenues, pointing out aspects that can be optimized to increase profitability. Therefore, finding a good financial system is an important step.
To do this, do market research and understand your needs. When evaluating the options, look at the features and support that the supplier offers. This way, you make the right selection and have an important ally to maximize profits.
Diversify payment methods
Consumers may have different preferences. Furthermore, there are times when they do not complete the purchase because they do not have the payment method they want available. This way, you stop selling and, consequently, making a profit.
Therefore, it is essential to find ways to avoid this objection and increase the number of negotiations used. There is the possibility of receiving via Pix, credit card, debit card, cash and many other ways.
Train your sales team
Service is a very important factor in keeping customers loyal to your brand. Therefore, investing in team qualification and training promises to bring excellent results. Especially the sales team, which works directly with the public, needs to develop various social skills so that communication with customers is satisfactory.
Such training also helps to improve the percentage of conversions into sales, which directly affects the profit for the period . Therefore, investing in lectures, events, networking and other resources in this regard helps to keep the team engaged and increasingly ready to serve its audience.
Profit and revenue are the pillars of a business’s financial management, as you can see in this article. Therefore, understanding them and investing in innovative management solutions is essential to promote growth and solidity in an increasingly competitive market.
