Profit is the difference between a company’s total income (revenue) and its total expenses. Revenue is everything the business makes from selling products and services, while expenses include raw materials, utilities, rent, and salaries.
It’s not uncommon for new businesses to struggle with profitability at first, but a lack of profits isn’t an indicator that the company isn’t working. Rather, it’s often due to the high initial costs associated with starting a business and reinvesting into the company.
Understanding what profit is and how it differs from other key business metrics like revenue will help you gain a deeper perspective of your financial health and potential for growth. Whether you’re an entrepreneur running a lemonade stand or the CEO of a publicly-traded multinational, profit matters.
Profit is the positive difference between a company’s total income and its total expenses. Profit is a key indicator of business health and serves as the foundation for long-term sustainability and growth. Profitable companies are able to reinvest in themselves, pay dividends to shareholders, and maintain higher valuations that attract investors.