Sales vs Profit: What's the Difference?
Understand the difference between sales and profit and why strong revenue does not always mean a business is making good money.
Sales tell you how much value your business sold. Profit looks at what remains after relevant business costs are taken into account.
Confusing the two can make a business appear healthier than it really is.
What are sales?
Sales represent the value generated from selling products or services during a period.
What is profit?
At a simple level, profit looks at income after relevant business expenses have been deducted.
Simple example
- Recorded sales: ₦1,000,000
- Relevant business expenses: ₦700,000
- Simple difference: ₦300,000
Why high sales can still leave little money
Stock, delivery, advertising, rent, utilities, staff costs and other expenses can consume a large part of sales. That is why watching only revenue can give an incomplete picture.
Track sales and expenses together
Keeping both sides of the business visible makes it easier to understand whether growth in sales is also improving the amount the business retains.
A note on formal accounting
Profit can be measured in more detailed ways depending on the purpose of the accounts. This guide explains the basic business concept rather than replacing formal accounting or professional advice.
Keep your sales, customers and expenses together instead of piecing your business records together later.
Track sales and expenses together with Tavo →Free to start. No card required.