Every business that is run for profit has the same basic goal: to sell goods or services to customers at prices that bring in more money than the company spends to create or offer goods and services. Business management often uses technical terms and phrases like gross revenue, net revenue and profits. Understanding the definitions of such terms and how they relate to one another is an important part of basic business education.
Gross revenue is the amount of money that a company takes in by selling goods or services within a certain period of time. Gross revenue is determined by adding up all of the sales a business makes during a given time period. For example, if you run an online T-shirt store and sell 10 shirts during a particular week at $15 apiece and 5 shirts for $20 apiece, your gross revenue for the week would be $250.
Net revenue is a company's gross revenue minus costs like the value of returned products, undeliverable products and discounts. Net revenue may also be referred to as net sales or simply revenue. Since net revenue is the actual amount a business brings in from its operations, taking into account returns and other considerations, it tends to be a more meaningful number than gross revenue.
Profit is the amount of net revenue a company makes in excess of its expenses. In other words, the profit of a company describes how much more money a company earns than it spends. If net revenue minus the expenses of running the company, such as the cost of labor, rent and materials used in production, is a negative number, then the company did not make a profit. When a company is not profitable it loses money over time.
When businesses do not bring in enough revenue to make a profit, they can move towards profitability by increasing revenues and decreasing costs. If increasing revenues through additional sales does not seem possible, a company may lay off workers or contract in other ways to reduce costs.