Revenue vs Earnings: What Every Small Business Needs to Know

Revenue vs Earnings: What Every Small Business Needs to Know

Every business on this planet needs to track its revenue and earnings. These are the two most basic metrics that represent the health of the company. They also need to be tracked and reported at regular, frequent intervals to describe the financial performance of a company over a time period. 

Understanding your company’s balance sheet can be complicated as a small business owner. That’s because most of the terms on your company’s income statement might sound similar but mean something completely different. 

A survey conducted among small businesses in 2024 revealed that the top three problems they faced were labor costs, low sales, and cost of insurance. These were the major issues eating away at a business’s income. With a solid knowledge of revenue vs earnings, a business owner can work to improve both.

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 Educating yourself about your company’s finances at the beginning can save you a lot of confusion down the road. 

In this article, we will demystify revenue vs earnings and the terminology surrounding it. We’ll take a look at what each of them means, their similarities and differences, and why they matter for your business. We’ll also take a look at some terms that are used interchangeably for revenue vs earnings and how to calculate them.

Let’s get started.

Revenue vs Earnings: Definition

To understand these terms better, let’s start with their definitions.


Revenue is the money that a business makes through the sales of its products and/or services. This is why, sometimes these two terms are used interchangeably. You should keep in mind that it is all of the money that comes into a company from sales before deducting expenses. Revenue can also include income generated from assets and capital. However, they should be part of the business’s main operations.

Let’s say you’re a boutique owner. Your store’s revenue is all of your profits from apparel and accessory sales.

Your company’s revenue can be found on the top line of your income statement, and hence, often referred to as the “top line.” This is also known as gross sales, net sales, gross revenue, sales revenue, and total sales. Generally, revenue is reported quarterly or annually by a company. 

Some refer to it as operating revenue; this is different from non-operating revenue–revenue that isn’t made from your primary business. Non-operating revenue can come from donations, lawsuit settlements, interest, investments, etc.


Now that we’ve covered what revenue means, let’s take a look at “earnings.” 

Your company’s earnings are what you make after deducting expenses like wages, income taxes, depreciation, rent, and loan interest. In other words, earnings represent the profits made by the company and both these terms are very commonly used to denote the same things. 

In a financial or income statement, earnings are usually listed at the bottom and that’s why it is also known as “bottom line” because it literally exists in the bottom line of the document. It takes quite a few deductions or subtractions from the revenue to calculate the earnings and that’s why it appears at the bottom. This term is also called net profit, operating income, or net income.

Both these values are required by investors to get a good understanding of how well a business is doing. For example, with only revenue figures in hand, investors can gauge how well a company’s sales are and how effective their marketing efforts have been. A high revenue indicates that the company’s products are popular and that the company has been able to market the product well.

However, this doesn’t mean that the company’s finances are healthy. Their income statement can show that their operating costs and other expenses are very high. In some cases, the expenses could outstrip revenue and the company could actually be in loss even if they post high revenue numbers. This is why investors always need a good overview of the revenue vs earnings of a company. 

So, what’s the difference between revenue and earnings? An understanding of how each of them is calculated should help to clear that up.

How to Calculate Revenue and Earnings

Revenue tracks sales only. The metric is quantified pre-tax and expenses. Your company’s revenue depends on the cost of goods sold (COGS) as well as the size and number of sales. It’s the money you make before deductions.

Tracking earnings is a bit more complicated for business owners. Earnings measure the actual efficacy of your business operations because it shows what is left over after all your expenditures. The formula for earnings is:

Earnings = revenue – expenses

So, revenue is pre-deductions; earnings are post-deductions. Need more help? Here’s a great income statement tutorial on YouTube.

Revenue vs Earnings: Similarities and Differences

Revenue and earnings both refer to business profits. Sometimes the terms are (incorrectly) used interchangeably, making it easy to get confused.

Revenue is how much money goes into your business from customer purchases. Let’s say you own a perfume shop. Your revenue would be all of the money that goes into your business from perfume sales. So, your revenue shows you how well your products and marketing initiatives are doing.

Your earnings, on the other hand, would be what is left over after deducting the cost of bottles, rent, utilities, and paying your hourly employees. Earnings are what you can actually take out after expenses. They take your back-of-house operations and budgeting into account. Earnings are also a great barometer for where you need to refine your business strategy.

A Few Other Terms to Know

Unfortunately, earnings vs revenue aren’t the only financial terms you’ll need to decode upon reviewing your company’s income statement. To cut through the confusion and prevent mix-ups, we’ve provided a quick list of financial terminology below:

  • Profit margin: A percentage that expresses a company’s profits. The formula is: (revenue – COGS) / revenue x 100. This looks more complicated than it is, and this online calculator can simplify the process.
  • Outstanding shares: A fluctuating number that refers to the shares of stock being held by a company’s shareholders. It includes restricted shares owned by members of the company and those owned by investors.
  • Inflow: A significant amount of money transferred to a business.
  • Gross margin: A company’s net sales revenue – the cost of goods sold.
  • EPS (Earning Per Share): This shows the valuation of a company’s stock by dividing its net profit by the number of shares it has on the market. Basically, this ratio shows how much a company is earning on each share. 
  • EBITDA: This stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
  • Amortization: An accounting term that refers to paying off a debt or spreading out expenses over time. This often refers to installment payments, but it can also refer to the amortization of intangibles, which is more complex.
  • Operating profit: This is calculated as gross profit – operating expenses, but before subtracting interest and taxes.

These terms (and the extensive list of synonyms for earnings and revenue mentioned above) should give you a baseline for financial planning.

Revenue vs Earnings: Why You Should Know the Difference

Even as a small business owner, it is critical that you know the difference between these two. Firstly, it will help you get a true picture of the health of your company and its finances. Additionally, you’ll be better able to make changes, build or edit processes, and analyze data when you have a good understanding of these basic yet essential terms. 

Creating financial statements

Once you’ve understood what’s revenue vs earnings, you will be able to gather all the data required to calculate the top and bottom lines more efficiently and accurately. You’ll be able to figure out all the different revenue streams and identify other costs and expenses.

As you subtract various expenses to reach the net income or earnings to get your bottom line, you’ll get a clearer picture of whether your business is healthy or not. If your business financials are not looking too good, an accurate financial statement will show you which costs can be reduced to improve the bottom line and make your business more sustainable.

Better prepared for investor meetings

Investors are mainly interested in profits. If you’ve been able to fully grasp revenue vs earnings and its related concepts, you’ll be able to better demonstrate how you plan to improve your company’s profitability. 

If you’re only worried about increasing company revenue without any interest in reducing costs, it gives the impression that you don’t have a good understanding of basic business dealings. The aim should be to improve profits and not just to sell as much as possible. You need to have a good plan on maintaining stability, growing your customer base, refining processes, and improving overall efficiency. 

Understanding Earnings or Net Income

Let’s delve in a little deeper. Earnings are also called net earnings, gross income, and gross profit. Unlike revenue, earnings aren’t just based on the cash flow coming into your company. 

You may have impressive sales numbers. However, if the total amount of money going out is greater than the money coming in, your earnings will be insignificant.

Your operating expenses are key in determining your earnings. You may find that you need to determine ways to reduce expenses after your evaluation. Don’t be discouraged if this is the case.

By identifying where to consolidate and refine, you will create opportunities to increase earnings down the line, without the effort.

The Importance of Revenue vs Earnings

You may have an incredible product, great employees, and offer a competitive in-store experience. Your business might be generating impressive revenue. But if you don’t understand how to optimize your revenue vs earnings, you still may not see business profits.

Understanding your company’s financial statements definitely isn’t the most thrilling aspect of running a business. However, by doing so you will be able to identify opportunities to increase your earnings.

Improve Your Company’s Cash Flow

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In summary, revenue vs earnings helps you uncover opportunities to refine your business and increase profitability. Reviewing your earnings on your company’s financial statements will help you zero in on the areas where you’re overspending.

You may discover that you need a more cost-effective shipping strategy or need to add a few more margin-builders to your inventory. Maybe you’re spending too much on packaging and can find a more environment-friendly solution. Or perhaps your credit card processing fees are eating away most of your profits so you might need to find an alternative.

Whatever the case, reviewing your expenditures will enable you to optimize your business strategy for improved earnings over a period of time. Soon, you’ll start seeing profits from all of your hard work and take your business to the next level.

Payment Depot’s interchange-plus pricing model saves you from overspending on card fees so you can increase your earnings and make more profits. To learn how Payment Depot can help you save more in credit card fees, contact our team today.

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