You measure your business's profits and revenue with a variety of metrics. Net income, gross revenue, and net revenue are some of the common metrics for this.
But how do these measurements differ, and which one is the best for assessing the financial health of your company?
Each of these measurements is important, so you should understand their significance and what they can tell you about your business.
Difference between gross and net
An item's gross value is the whole amount, while its net value refers to the amount that remains after some deductions have been made. A business with a revenue of $5 million and expenses of $1 million has a gross revenue amount of $5 million and a net income amount of $4 million.
Several items on the financial statements are referred to as gross:
- Gross Revenue: Revenue before deducting any items such as returns and refunds.
- Gross Assets: Total assets minus any deductions.
- Gross Margin: Gross profit divided by revenue shows gross profit as a percentage.
Financial statements show net items such as:
- Net Assets: An asset's value after certain liabilities have been subtracted.
- Net Earnings: The remaining amount after all expenses are deducted from revenues.
- Net Margin: Net income divided by revenue to show net income as a percentage of revenue.
Difference between revenue and income
A business' revenue is the total amount of money it earns from its sales of goods and services. Since it is added to the top of the income statement, it is also referred to as the top line.
A business' revenue is the cash it generates before deducting its expenses. It shows how well a business can generate sales, but it doesn't take into account operating efficiencies, which can affect the bottom line. Top-line growth refers to a company's increase in revenue or gross sales.
The term income, whether gross or net, refers to a company's total profit or earnings. Whenever analysts and investors talk about a company's income, they are referring to the company's net income or profit. In some cases, the terms income and revenue are synonymous; however, net income represents a person's total earnings after subtracting any other incomes and expenses.
Let’s consider the following revenue vs. income example:
Apple reported revenue of $260 billion in 2019. That represents a 2% drop year-over-year. The company also posted $55.3 billion in net income for the same period, a decrease of 7% from the previous year.
Based on the above, it can be seen that Apple's net income is lower than its total revenue. This is because the net income includes the expenses Apple incurred during that period. This example clearly shows the difference between revenue and income when referring to the financials of a business.
Comparing gross revenue, net revenue and net income
A business should always know how successful it is at any given time. As a result of this, businesses should evaluate their profitability as well as their ability to control expenses. A business must also know the costs associated with doing business, such as the cost of goods sold, employee payroll, rent, utility bills, and office supplies.
In most cases, investors are more interested in a company's gross revenue because it demonstrates its ability to generate sales and its potential for growth. For new SaaS offerings, tracking your gross revenue will be extremely important to determine the viability of your new subscription service.
Even so, it does not mean that you should forget about net revenue and income, as these provide the most accurate information on cost and value.
| Gross Revenue | Net Revenue | Net income |
Definition | A company's gross revenue is its revenue before expenses. | A company's net revenue represents the total amount it makes from its operations minus any adjustments such as refunds, returns, and discounts. | A company’s net income is its profit after deducting expenses and other allowances. It is the total amount of profit or loss after expenses. |
Indicates | Shows the amount of money you’ve generated from selling goods and services | Give you a more complete picture of your revenue | Tells whether your business is profitable or not |
Formula | (price per product or service) x (total number of products or services sold) | gross revenue - discounts - returns - commissions | net revenues – total expenses |
Example | For example, if your company has 5000 subscribers at $10/month each, then your gross revenue for that month will be $50,000 ($10 × 5000). | Suppose 20 of your subscriptions were canceled mid-month with a full refund. Net revenue is $49,800 ($50,000 - $200). | If your cost of doing business is $20,000, your net income is $29,800 ( $49,000 - $20,000) |
Also known as | Topline | | Bottomline |
It is crucial to track them all for strategic and operational decision-making. Businesses can know where most of their money is spent with a proper understanding of these three metrics. By reducing unnecessary costs, businesses can increase profitability. The best way to track and monitor these metrics is with a powerful analytic solution that provides easy-to-understand SaaS dashboards and analytics.
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FAQs
A company's gross revenue is its revenue before expenses. A company's net revenue represents the total amount it makes from its operations minus any adjustments such as refunds, returns, and discounts. A company's net income is its profit after deducting expenses and other allowances.
What is the difference between net revenue and gross revenue? ›
Both gross revenue and net revenue are financial metrics that offer insights into your company's financial health, but from different perspectives. Simply put, your gross revenue is your earnings before you deduct your expenses, and your net revenue is your earnings after you subtract your expenses.
How is net income different from gross income? ›
Looking for a faster, more accurate way to calculate pay? Gross pay is what employees earn before taxes, benefits and other payroll deductions are withheld from their wages. The amount remaining after all withholdings are accounted for is net pay or take-home pay.
Are gross income and revenue the same? ›
Gross income or gross profit represents the revenue remaining after the costs of production have been subtracted from revenue.
What is income vs revenue vs net income? ›
A company's net income is the result of many calculations, beginning with revenue and encompassing all costs, expenses, and income streams for a given period. The sum of income less all costs and expenses is the net income. When spending exceeds the budgeted revenue, it causes a revenue deficit.
How do you calculate net revenue? ›
Net revenue = gross revenue - discounts - returns - commissionsThe net revenue formula is an important tool that business accountants can use to quickly calculate a company's total earnings after subtracting specific sales-related data.
How do you recognize revenue gross vs net? ›
Gross revenue is the total dollar amount gained from sales. Net revenue is the total dollar amount gained from sales after accounting for revenue expenses, which are usually operational in nature.
What is the main difference between gross and net? ›
What is Gross vs Net? Gross means the total or whole amount of something, whereas net means what remains from the whole after certain deductions are made.
Do you get taxed on gross or net income? ›
Gross income includes all income you receive that isn't explicitly exempt from taxation under the Internal Revenue Code (IRC). Taxable income is the portion of your gross income that's actually subject to taxation. Allowable deductions are subtracted from gross income to arrive at your taxable income.
Is household income gross or net? ›
Household income refers to gross pay, which is the total income you receive before taxes and other deductions, such as health insurance, are taken out. Net income, on the other hand, is your take-home pay. That's the money left over after deductions and taxes are withheld.
Personal Gross Income vs. Net Income. For example, an individual has $60,000 in gross income and qualifies for $10,000 in deductions. That individual's taxable income is $50,000 with an effective tax rate of 13.88%, giving an income tax payment of $6,939.50 and NI of $43,060.50.
What is meant by net income? ›
Net income refers to the amount an individual or business makes after deducting costs, allowances and taxes. In commerce, net income is what the business has left over after all expenses, including salary and wages, cost of goods or raw material and taxes.
Why is it called gross revenue? ›
Gross revenue, also known as gross income, is the sum of all money generated by a business, without taking into account any part of that total that has been or will be used for expenses.
Which is better net revenue or gross revenue? ›
In most cases, investors are more interested in a company's gross revenue because it demonstrates its ability to generate sales and its potential for growth. For new SaaS offerings, tracking your gross revenue will be extremely important to determine the viability of your new subscription service.
What is net income vs gross income? ›
Per definition, gross income is the total amount you earn, and net income is actual business profit after expenses and allowable deductions are taken out. However, because gross income is used to calculate net income, it's important to understand how each is calculated.
What is more important net income or revenue? ›
Net income and revenue are equally important metrics for business managers. Net income measures the company's profitability and is an indicator of efficiency and financial health. Revenue measures the company's ability to generate sales and is an indicator of business size and potential growth.
What is the difference between net and gross? ›
The terms gross income and net income can be easily confused. Per definition, gross income is the total amount you earn, and net income is actual business profit after expenses and allowable deductions are taken out.
Does net revenue include taxes? ›
Taxes: Payroll taxes, excise taxes, sales tax and income tax are all deducted before you arrive at your net income. Legal and administrative costs: Any fees paid to lawyers, accountants and other consultants come out of your gross revenue.
What is meant by gross revenue? ›
Gross revenue is the total revenue generated by a business without deducting any expenses and losses, while gross profit is the difference between gross revenue and the cost of goods sold (or services rendered).
How is GMV different from revenue? ›
Gross merchandise value measures the total value of goods sold on a platform or marketplace over a specific period of time. GMV is the full amount customers pay before deductions like fees, discounts, or returns. GMV and revenue are not interchangeable. Revenue is what remains after subtracting deductions from the GMV.
