What is the difference between revenue and income?

If you are new to running a business, you may find some accounting terms confusing. Revenue, income, and profit are not interchangeable terms, and as an e-commerce entrepreneur, you should know the difference. Let’s look at the difference between revenue and income and how it relates to your business.

When you embark on a new business venture, it doesn’t mean you have to become an accountant overnight but if you have a rudimentary understanding of accounting terms you will find it easier to keep your bookkeeping up to date and to use the data for growth. Revenue and income are key terms, so here’s what you need to know.

What is Revenue?

Revenue is the amount that has come into your e-commerce business and is used to calculate profit and income. People sometimes refer to it as the “top-line” because it is the top-line on a financial statement. You may have heard the term “top-line growth”, which relates specifically to an increase in this figure.

You can calculate revenue using the following formula:

Income – any discounts – any deductions for returns* = revenue

*technically returns should only be factored into net sales, but they are often classed a revenue-deduction.

As an e-commerce entrepreneur, you must keep track of any discounts that are issued and your returns figures. Both are commonplace adjustments in the e-commerce sphere. Note that no expenses should be deducted from this figure. Additional income streams, such as office rental income or storage rental income, that are outside the scope of your primary line of business i.e. e-commerce, are also not included at this point.

When you are calculating your profit and income, you will use your revenue figure as a starting point.

Key takeaways

Revenue is the total amount generated by sale of goods or services

Can be generated from advertising, subscriptions, and rental income in addition to sales of goods, services, and assets

Can be used to determine business performance and financial health

What is Income?

Income, or operating income to give it its full name, is calculated by deducting your expenses operating expenses from your revenue.

You can calculate income using the following formula:

Revenue – operating expenses – depreciation and amortization = income

Note that you do not adjust for taxes, loan interest or business debt here. That is factored into profit. Again, don’t include any income or expenditure that is outside the realm of e-commerce. If you are unsure if something should be included, ask an e-commerce specialist accountant for guidance.

Key takeaways

Represents earnings left after expenses

Can be used to influence cash flow management and to evaluate cost control

Income can be generated through investment, marketing, and sales

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What is net income?

Income and revenue are also often compared to net income or profit. This is also sometimes referred to as the “bottom-line” as it is the last line in a financial statement.

Net income or profit considers all income and expenditure received or accrued for by your e-commerce business. This includes taxes, depreciation of goods, investment income, licensing income and anything else that has gone through your accounts and not come into play until this point.

Purpose of Income, Revenue and Profit

Remember that all three of these markers are crucial to gauge the health of your e-commerce business. If you look at all three figures together you will get a much clearer picture than if you look at one in isolation.

It is possible to have low sales but a relatively high profit (for example, if you have just begun trading and sell luxury goods), high revenue but a low net income (for example, if you incurred administrative start-up costs or have unneeded staff hours) or high income and revenue but a loss due to debt servicing.

Revenue vs Income

While they may not refer to the same thing, revenue and income are both important financial terms in e-commence accounting.

Below we have defined each and mentioned the differences between them.

Definition: Revenue is the total amount of money earned by a business through sales of goods or services before any deductions.

Income is the total amount of money that remains after deducting all expenses from the total revenue.

Features: Revenue includes all sources of income including sales, rental, interest, and other forms of business income.

Income represents the true profitability of a business and provides a ‘bottom line’ figure to determine financial performance.

Purpose: Revenue reflects sales volume and informs e-commerce businesses of line-growth growth.

Income assesses financial health and the overall success of a business.

How to use your income and revenue figures

While a high income figure is great, the difference between income and revenue figures can be a valuable indicator of your e-commerce business’ profitability. Sales don’t necessarily mean your business is sustainable. Review the difference to ensure your costs aren’t creeping up and your growth is genuine.

By analysing these figures, you will be able to make smart decisions on the future of your business – is it time to expand into new markets? Should you look at an R&D grant? Do you need to adhere to a budget for your operating expenses to expand the profitability of your goods?

Next Steps

We hope you are now clear on the difference between revenue and income, and also profit, but if you would like assistance to plan for your e-commerce business’ financial future, we are here to help. As e-commerce specialists, we can help you scale while minimizing the time you spend on your accounts by harnessing automation.

Why choose Unicorn Accounting?

Ensure you keep on top of your finances and tax obligations by outsourcing to an accountant. This means that you don’t need to worry about your end of year accounts, payroll, or bookkeeping requirements.

At Unicorn Accounting we are e-commerce accountants who help make your online business a growing success. We offer e-commerce accounting advice, financial management, bookkeeping, cash flow statement, and tax filing services to support and scale your business.

Our team of accountants and Xero-certified advisors have experience working with both small start-ups and family-run online stores to large-scale, international retail and e-commerce brands.

If you’ve got an online store, we have the best solution for you. Providing you with a financial arm to your business through our sector experience, and skills with innovative technologies. To see how we can help you maximise the scalability of your e-commerce brand all year round, get in touch with Unicorn Accounting today. Or click here to get a free quote.

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