Sunday, June 8, 2025
News PouroverAI
Visit PourOver.AI
No Result
View All Result
  • Home
  • AI Tech
  • Business
  • Blockchain
  • Data Science & ML
  • Cloud & Programming
  • Automation
  • Front-Tech
  • Marketing
  • Home
  • AI Tech
  • Business
  • Blockchain
  • Data Science & ML
  • Cloud & Programming
  • Automation
  • Front-Tech
  • Marketing
News PouroverAI
No Result
View All Result

Revenue vs. profit: What’s the difference and why does it matter?

December 29, 2023
in Front-Tech
Reading Time: 5 mins read
0 0
A A
0
Share on FacebookShare on Twitter


It was our most successful year. The business grew 20 percent compared to the previous year and the CEO was about to share the results in detail.

\"Revenue

“We delivered 280 million EUR this year. It’s our most successful year and there’s still plenty to grow. Alongside this, we had 3 million EUR of net profits.”

As I listened to the CEO, I was confused. How could we capture so much revenue and generate so little profit? I couldn’t connect the dots, so I asked the CEO and she replied:

“We’re in the growth phase, meaning we’re investing most of our profit to expand our reach and capture more revenue. Our investors support this strategy as we acquire more market share, which is better than having high profit and paying more taxes.”

Everyone laughed as I started understanding the game was about balancing present and future, not about playing it safe and collecting profits immediately.

In this post, you’ll learn about revenue and profit, as well as the difference between the two. Along this, we’ll cover the strategies for the two.

The difference between revenue and profit

Revenue relates to the overall income the company manages to create, while profit refers to what’s left over after covering all costs. More revenue doesn’t necessarily mean more profit and more profit isn’t always the best strategy.

However, without revenue, you cannot have profits. An unprofitable company won’t live long.

The critical question becomes how you balance revenue and profit.

The importance of revenue and profit for business strategy

It’s important that you first determine your business strategy before you try to understand how revenue and profit affects your product.

Here are five typical business models for digital products:

Subscription — Here, the user pays a recurrent fee. It’s possible to have different tiers differentiating the service offering. Netflix and Amazon Prime use this model
Freemium — In this model, users can benefit from the product’s value without paying anything, but they face a few limitations that only premium users can get. Dropbox uses this format by offering free storage up to a few gigabytes but requiring users to pay if they want more
SaaS — Instead of hosting a product on-premise (local data center), companies can hire software as a service product. Personio reached an 8.5 billion USD valuation in 2022 with a full-service human resources solution in Europe
On-Demand — Pay for what you use has become increasingly popular, as this reduces friction to hire a service. That’s the case for Amazon Web Services (AWS), Google Cloud Platform, and many others
Marketplace — If someone wants to sell something and someone wants to buy, this model enables that to happen. Airbnb and Uber are marketplaces and the first charges the buyers (guests), and the second charges the sellers (drivers)

In early-stage start-ups, generating revenue justifies more investments because it proves market fit. In such cases, it’s fine to have negative profits as the business strives to find its place on the market. Meanwhile, the strategy will differ in scale-ups where growing sustainably is important.

How revenue and profit impact product strategy

Looking at revenue and profit alone won’t cut in most cases. It’s vital to understand how much it costs to create the revenue you have.

We “bought” revenue to prove market fit in an early-stage start-up where I worked. To do this, we invested in high-quality service so customers would seek us out and then return back after. At first glance, you may think this is unsustainable, but once you look at the big picture, you can understand it better:

Customer acquisition cost (CAC) — How much does it cost to acquire your customers? Track such costs as fast as possible because this will be fundamental to deciding on further investments
Customer lifetime value (LTV) — How much revenue can each customer bring throughout the relationship you built with them?
LTV: CAC ratio — The relationship between acquisition costs and lifetime value helps you understand how sustainable your business is. For example, a 1:1 ratio means your business won’t be profitable, while a 5:1 ratio shows that you’re highly profitable

Tips for maximizing revenue and profit

In any business, you’ll have opportunities to optimize how you create revenue and collect profits. Here are some aspects to explore:

Double down on high runners — What are your most sold products or services? Once you identify them, you can reinvest the profit into making such offerings even more successful
Cut the low runners — What’s in your product that your customers ignore or barely use? Remove such parts as fast as possible. Cluttered products distract customers, increase maintenance costs, and slow teams down
Encourage higher commitment — This is common in subscription models. The advantage of such a model is that customers can quickly leave when they lose interest, but that’s painful for the business. You can increase revenue by offering considerable discounts (15 percent +) for yearly subscriptions
Make or buy — Don’t build everything. Many businesses do everything on their own, which increases costs and reduces profitability. Focus on the core of your product while partnering with other companies to reduce your product complexity
Cross sale — Building an ecosystem will create a highly profitable business. Once you get an iPhone, you may opt for an AirPod, Apple Watch, or Apple Music

Key takeaways

Revenue and profits are fundamental to any business. Once you understand their relationship and how you can create one while driving the other, you’ll be better equipped to manage your product moving forward.

However, make sure to avoid becoming tunnel visioned about them. Strive to understand the big picture by considering your customer acquisition cost, lifetime value, and ratio. Always look at the big picture before making any premature decisions.

Featured image source: IconScout

The post Revenue vs. profit: What’s the difference and why does it matter? appeared first on LogRocket Blog.



Source link

Tags: DifferencematterProfitRevenueWhats
Previous Post

India-UK FTA: Scotch whiskey, EV, services issues may figure in 14th round of talks in Jan

Next Post

Meet BarbNet: A Specialized Deep Learning Model Designed for the Automated Detection and Phenotyping of Barbs in Microscopic Images of Awns

Related Posts

The essential principles of a good homepage
Front-Tech

The essential principles of a good homepage

June 7, 2024
How to measure and improve user retention
Front-Tech

How to measure and improve user retention

June 6, 2024
Push Animation on Grid Items
Front-Tech

Push Animation on Grid Items

June 5, 2024
How to build a Rails API with rate limiting
Front-Tech

How to build a Rails API with rate limiting

June 4, 2024
Introduction to the B.I.A.S. framework
Front-Tech

Introduction to the B.I.A.S. framework

June 3, 2024
Blue Ridge Ruby is exactly what we need
Front-Tech

Blue Ridge Ruby is exactly what we need

June 3, 2024
Next Post
Meet BarbNet: A Specialized Deep Learning Model Designed for the Automated Detection and Phenotyping of Barbs in Microscopic Images of Awns

Meet BarbNet: A Specialized Deep Learning Model Designed for the Automated Detection and Phenotyping of Barbs in Microscopic Images of Awns

What Is An AI Influencer And How To Create One Easily?

What Is An AI Influencer And How To Create One Easily?

Building a React Native number pad feature from scratch

Building a React Native number pad feature from scratch

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

  • Trending
  • Comments
  • Latest
23 Plagiarism Facts and Statistics to Analyze Latest Trends

23 Plagiarism Facts and Statistics to Analyze Latest Trends

June 4, 2024
Accenture creates a regulatory document authoring solution using AWS generative AI services

Accenture creates a regulatory document authoring solution using AWS generative AI services

February 6, 2024
Managing PDFs in Node.js with pdf-lib

Managing PDFs in Node.js with pdf-lib

November 16, 2023
Graph neural networks in TensorFlow – Google Research Blog

Graph neural networks in TensorFlow – Google Research Blog

February 6, 2024
13 Best Books, Courses and Communities for Learning React — SitePoint

13 Best Books, Courses and Communities for Learning React — SitePoint

February 4, 2024
From Low-Level to High-Level Tasks: Scaling Fine-Tuning with the ANDROIDCONTROL Dataset

From Low-Level to High-Level Tasks: Scaling Fine-Tuning with the ANDROIDCONTROL Dataset

June 10, 2024
Can You Guess What Percentage Of Their Wealth The Rich Keep In Cash?

Can You Guess What Percentage Of Their Wealth The Rich Keep In Cash?

June 10, 2024
AI Compared: Which Assistant Is the Best?

AI Compared: Which Assistant Is the Best?

June 10, 2024
How insurance companies can use synthetic data to fight bias

How insurance companies can use synthetic data to fight bias

June 10, 2024
5 SLA metrics you should be monitoring

5 SLA metrics you should be monitoring

June 10, 2024
From Low-Level to High-Level Tasks: Scaling Fine-Tuning with the ANDROIDCONTROL Dataset

From Low-Level to High-Level Tasks: Scaling Fine-Tuning with the ANDROIDCONTROL Dataset

June 10, 2024
UGRO Capital: Targeting to hit milestone of Rs 20,000 cr loan book in 8-10 quarters: Shachindra Nath

UGRO Capital: Targeting to hit milestone of Rs 20,000 cr loan book in 8-10 quarters: Shachindra Nath

June 10, 2024
Facebook Twitter LinkedIn Pinterest RSS
News PouroverAI

The latest news and updates about the AI Technology and Latest Tech Updates around the world... PouroverAI keeps you in the loop.

CATEGORIES

  • AI Technology
  • Automation
  • Blockchain
  • Business
  • Cloud & Programming
  • Data Science & ML
  • Digital Marketing
  • Front-Tech
  • Uncategorized

SITEMAP

  • Disclaimer
  • Privacy Policy
  • DMCA
  • Cookie Privacy Policy
  • Terms and Conditions
  • Contact us

Copyright © 2023 PouroverAI News.
PouroverAI News

No Result
View All Result
  • Home
  • AI Tech
  • Business
  • Blockchain
  • Data Science & ML
  • Cloud & Programming
  • Automation
  • Front-Tech
  • Marketing

Copyright © 2023 PouroverAI News.
PouroverAI News

Welcome Back!

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Fill the forms bellow to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In