Revenue vs. profit

Revenue represents the total income from sales, while profit is the remaining income after you deduct all expenses.

Revenue and profit answer two different questions about your business: How much are you bringing in, and how much are you keeping? Confusing the two can lead to decisions that look like growth on paper but strain cash in practice—a risk that’s grown sharper as HR and Finance leaders face more pressure than ever to align on the numbers behind every people decision. 

The United States Securities and Exchange Commission’s (SEC) guide to reading financial statements makes the same point from the accounting side. Revenue and profit sit in different places on the income statement for a reason.

Revenue and profit are the two metrics that give you the clearest read on your business’s financial health. They shape how you read financial statements, manage cash flow, and build budgets for the next month, quarter, and year.

This guide breaks down revenue vs. profit, how to calculate each one, and what you can do to grow both.

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Key insights

• Revenue represents total income from sales, while profit is what remains after subtracting all expenses—both are essential to understanding financial health and performance
• Tracking revenue reveals growth trends and sales strategy effectiveness, making it a foundation for budget planning and forecasting
• Profitability measures—gross, operating, and net profit—show how efficiently a business operates and how stable its finances are
• Revenue signals growth; profit signals sustainability. Reading both together leads to stronger financial decisions and planning

Revenue vs. profit 

	Revenue	Profit
Meaning	Total income from core business activities, before expenses	Income remaining after you subtract all expenses from revenue
Income statement location	Top line—the first figure listed	Bottom line—the final figure after deductions
Formula	Price × quantity sold, minus refunds and discounts	Revenue + other income − total expenses
What it shows	How much money is coming in from sales	How much money the business actually keeps
Includes non-core income?	No—only core business activity	Yes—net profit includes investment income, asset sales, and similar sources
Types	Gross revenue (total sales before deductions), net revenue (after discounts and returns), annual recurring revenue (predictable subscription revenue)	Gross profit (revenue minus cost of goods sold), operating profit (gross profit minus operating expenses), net profit (what’s left after all expenses, interest, and taxes)
Best for measuring	Growth, sales performance, market traction	Financial efficiency, sustainability, investment potential
Sensitive to	Pricing changes, customer acquisition, churn	Operating costs, debt, taxes, one-time expenses
Used by	Sales and marketing teams to track growth	Finance teams and investors to assess viability
Limitation when used alone	Doesn’t account for the cost of generating that income	Doesn’t show how fast the business is growing

What is revenue?

Revenue (also called the topline) is the money your business earns from core operations, like selling products or providing services. It’s often called the top line because it’s the first number on your income statement. Revenue doesn’t include income from things like rent on company property or interest on savings—only what you earn from day-to-day business.

You might also hear it called net sales or net revenue. That’s because you subtract things like discounts, credits, and refunds from your total sales to get to your actual revenue.

For a SaaS company, revenue includes everything customers pay—monthly or annually—to use the software.

Understanding your revenue helps you track incoming cash flow, build budgets, and forecast your revenue run rate. It’s a starting point for shaping financial plans and projecting future growth.

Annual recurring revenue (ARR)

If your business runs on long-term subscription contracts, you might also track annual recurring revenue (ARR)—the total revenue you expect from active contracts over a 12-month period. ARR helps you gauge product-market fit and benchmark your business against others in your space. 

SaaS Capital’s 2025 survey of more than 1,000 private B2B SaaS companies found a median ARR growth rate of 25 percent, down from 30 percent the year before. It’s worth checking your own growth against this rate as you plan next year’s targets.

What is profit?

Profit is what’s left after your business covers all its expenses. That includes things like operating costs, taxes, and depreciation—when assets lose value over time. Unlike revenue, profit also reflects income from outside your core business, such as rental or interest income.

To understand your company’s financial health, it helps to look at profit from different angles. That’s why businesses use multiple types of profit—each one showing how earnings and expenses stack up at different stages.

Here are the most important types of profit to know:

1. Gross profit

Gross profit is what you get when you subtract the cost of goods sold (COGS) from your revenue. COGS includes the direct costs of delivering your product or service—like server expenses or third-party subscription fees for a SaaS company.

You can also look at gross profit as a margin: Gross profit margin shows how much of your revenue remains after covering those direct costs. It’s a useful way to measure profitability and compare your performance to similar businesses.

In SaaS, there are two types of gross profit margins: subscription gross margin and total gross margin. Subscription gross margin excludes customer support costs, so you can focus on the profitability of your core offering. 

To gauge your company’s profitability, you can benchmark your subscription and total gross margins against industry data. According to KeyBanc Capital Markets’ 2024 Private SaaS Survey, the median total gross margin for private SaaS companies is 72 percent, while subscription gross margins typically run higher—around 79 percent—since they exclude customer support costs.

To gauge your company’s profitability, you can benchmark the subscription and total gross margins with these numbers.

Software Equity Group recommends that healthy, privately-held SaaS businesses have a total gross margin of over 70 percent, but there are exceptions. For instance, if you’re a SaaS startup and providing frequent discounts, your gross margins may be lower than average for the first couple of months.

2. Operating profit

Operating expenses are the everyday costs of running your business—like rent, salaries, marketing, and utilities. When you subtract those from your gross profit, you get operating profit (also called net operating income).

Operating profit reflects only the cash flow from your core business. It excludes taxes, interest payments, or one-time income like asset sales. That makes it a strong indicator of how your business is really performing.

Let’s say your SaaS startup carries some debt that’s reducing your overall profit. If you’re still seeing positive operating profit, it’s a sign your core business model is sound—and you’re heading in the right direction.

3. Net profit

Net profit is your company’s true bottom line—what’s left after you’ve accounted for every income source and expense. That includes taxes, loan interest, one-time costs, and income from non-core activities like selling assets or investments.

It’s called the “bottom line” because it appears at the end of your income statement—and gives you a full picture of profitability.

For many VC-backed SaaS companies, early-stage net losses are common due to heavy upfront investments. But that’s not necessarily a red flag. If your total gross profit margin is healthy, it’s a good signal that your business fundamentals are strong.

When to prioritize revenue vs. profit

	When to prioritize revenue	When to prioritize profit
Decision you’re making	How much to invest in sales and marketing, or whether a new feature is gaining traction	Whether to raise prices, cut a discount program, or pull back on paid acquisition
What it tells you	How many subscriptions you’re selling over a given time—whether demand exists	Whether that demand is actually profitable to serve
Warning sign to watch	Flat or shrinking subscriber counts despite spend	Revenue growing while margins shrink or costs climb
Example	A new feature drives signups—worth tracking before judging its profitability	$100 million in ARR with no profit signals a pricing or cost problem more revenue won’t fix
Bottom line	Use revenue to decide where to invest	Use profit to decide whether that investment is working

Which metric matters more depends on the decision you’re making.

If you’re deciding whether to raise prices, cut a discount program, or pull back on paid acquisition, profit is the number to watch. A SaaS product bringing in $100 million in ARR but burning cash on every customer signals a pricing or cost problem that more revenue alone won’t fix.

If you’re deciding how much to invest in sales and marketing, or whether a new feature is gaining traction, revenue is the more useful signal. It tells you how many subscriptions you’re selling over a given time, which shows whether demand exists before you ask whether that demand is profitable.

Before locking in either number, ask:

• Did you have to spend heavily to drive that growth?
• Did you offer deep discounts—and what was the cost?
• Did a marketing push boost signups, or did the product sell itself?

The answers show up in your expenses and ultimately shape your net profit. Revenue that grows alongside healthy profit points to sustainable growth; revenue that grows while profit shrinks points to a business buying growth it can’t yet afford.

Bottom line: use revenue to decide where to invest, and profit to decide whether that investment is working.

How to increase revenue 

Growing revenue comes down to selling more, and there’s more than one lever to pull.

• Run targeted marketing campaigns to reach the audience most likely to convert. A SaaS company selling project management software, for example, might narrow its ad spend to teams already searching for workflow tools instead of general productivity terms.
• Upsell and cross-sell to increase average revenue per user (ARPU). If a customer is on a basic plan and using the product daily, that’s a signal they might get value from premium features, prompting an upgrade conversation rather than waiting for them to ask.
• Improve retention rates so existing revenue doesn’t quietly erode. A customer success team that checks in proactively before renewal, rather than only after a cancellation request, catches problems while they’re still solvable.
• Expand into adjacent markets or customer segments. A tool built for HR teams might find a second customer base in operations or finance teams solving a similar problem.

How to increase profit

Increasing profit means either bringing in more money without a matching rise in costs, or cutting costs without hurting revenue.

• Reduce the cost of goods sold by renegotiating vendor contracts or moving to more efficient infrastructure. A SaaS company paying for unused server capacity, for example, can right-size its cloud spend and drop that savings straight into gross margin.
• Add non-operating revenue where it makes sense, such as renting out unused office space or earning interest on cash reserves. This income flows into net profit without adding to your cost base.
• Adjust pricing carefully. Raising prices can backfire if the market is sensitive to cost, so consider a flexible structure—like tiered plans—that lets different customer segments pay for what they actually use.
• Use automation to handle repetitive work. Tasks like invoice processing or usage reporting that once needed a person to manage them can often run with less manual oversight, freeing up budget for higher-impact work.
• Adjust operating leverage by reviewing which costs scale with revenue and which don’t. Fixed costs that don’t grow as you add customers—like a flat software license fee—mean each new dollar of revenue contributes more to profit over time.

How to calculate revenue vs. profit

Calculating revenue vs. profit is simple when you know the formulas. But you’ll always need to calculate revenue first since the profit formula requires revenue.

How to calculate revenue

To calculate the revenue, multiply the subscription fee by the number of subscriptions during a time period and then subtract any refunds.

Make sure to use data for the same time frame to collect revenue. For instance, if you’re calculating monthly revenue, use the monthly subscription price and the total number of monthly subscriptions.

Here, the subscription price may vary depending on different tiers (or plans). Similarly, you may offer a discount for an annual subscription. If that’s the case, multiply the different subscription fees by the number of subscribers using that plan and sum up the acquired products.

How to calculate profit

Once you have the revenue, you can calculate profit (or net profit) by subtracting total expenses (COGS, operating expenses, debts, and taxes) from total revenue and other income.

Essentially, you account for all cash inflows and outflows to reach your profit or bottom line. Here, other income includes income from investments or the sale of an asset.

Now that you know how to calculate revenue vs. profit, let’s talk about other SaaS metrics you should know as a SaaS business owner.

Additional SaaS metrics to consider

While revenue and profit are key metrics for any business, SaaS business owners should also look at other metrics to better understand the company’s financial health.

1. Customer acquisition cost (CAC)

Customer acquisition cost (CAC) is the money you spend on average to acquire one customer. A higher CAC means a company will have to retain customers for more time to get a positive return on its investment.

CAC is important for almost any industry you can think of, but more so for the SaaS industry since the SaaS business model’s profitability depends on the customer’s lifetime value.

For this reason, lowering CAC can have a visible impact on your company’s total income. Here’s how you can calculate CAC:

2. Average revenue per user (ARPU)

The average revenue per user (ARPU) is a useful metric for any business, especially for subscription-based businesses. It shows how much money the business gets from an average user.

As a SaaS business owner, knowing how to draw insights from your ARPU is important.

Suppose you offer 10 percent on new sign-ups. As more subscribers use your offer, the ARPU will decrease. But this decrease isn’t a bad sign.

However, if your ARPU falls in isolation, look for reasons users refrain from spending on your services. For instance, a new competitor may offer better premium plans, and your high-plan users may shift to that service.

Also, ARPU might increase even with subscriber loss and negative revenue growth. Make sure to use ARPU with other SaaS metrics to have a more accurate picture of your business’s financial situation.

Here’s how you can calculate ARPU:

3. Lifetime value (LTV)

Lifetime value (LTV) or customer lifetime value (CLV) is an estimated SaaS metric that shows the total net profit the company will generate from a user throughout their relationship.

LTV helps you understand your customer’s worth and make strategic decisions regarding marketing, advertising, and revenue forecasting. For instance, a CAC of $200 may sound bad, but a corresponding LTV of $600 would make up for it.

Here’s how you can calculate LTV:

Here, the churn rate is the ratio of customers who stopped using your service to your total customers during a time frame. For instance, if you had 1,000 users during a specific year and 50 users canceled their subscription, your churn rate would be five percent for that year.

LTV, CAC, and other SaaS metrics collectively make up a crystal ball for your business. If you don’t want to spend time calculating these, you can use software that automatically aggregates financial data into a single dashboard.

Increase profit and revenue together

Revenue and profit aren’t competing priorities—they’re two views of the same business. Growing one without tracking the other can mask problems: revenue that climbs while margins quietly shrink, or profit that looks healthy because growth has stalled. The businesses that last keep both numbers in view at once.

That’s harder to do when HR and Finance work from separate systems and separate spreadsheets. HiBob brings workforce and financial data together in one platform, so people decisions—headcount, compensation, hiring—connect directly to the budget realities behind them. 

HiBob’s Compensation Management gives Finance real-time tracking of budget targets versus actual spend, while Bob Companion surfaces workforce insights and reports in natural language. This helps HR and Finance skip the manual work of pulling numbers from separate systems.

<< Book a demo to see how HiBob supports stronger alignment between your people data and your financial performance >>

Revenue vs. profit FAQs

Can profit be higher than revenue?

Theoretically, net profit can be higher than revenue when a company’s income through non-core business operations, such as the sale of investments, temporarily exceeds operating costs. For example, if a business earning $50,000 in revenue with operating costs of $10,000 sells assets worth $20,000, their net profit of $60,000 would exceed revenue.

How much of revenue is profit?

The amount of profit generated compared to your revenue depends on your gross margin. It subtracts the cost of revenue from net revenue to tell you how much money you keep for every dollar you make.

What is a good annual revenue?

Benchmarks for “good” annual revenue depend heavily on the growth stage for VC-backed SaaS companies. While there’s rarely a one-size-fits-all answer, here are some rough guidelines for what good annual revenue is for a startup about to raise a round:

• Series A: $1 million to $2 million ARR
• Series B: $3 million to $7 million ARR
• Series C: $7 million to $25 million ARR
• Series D and beyond: $75 million to $100+ million ARR

What is deferred revenue​?

Deferred revenue is money a business collects before it delivers the product or service tied to it. A SaaS company that charges for an annual subscription upfront, for example, hasn’t yet earned that full amount—it recognizes the revenue gradually, month by month, as the customer actually uses the software. Until then, the unearned portion sits on the balance sheet as a liability, not as revenue on the income statement.

What’s the difference between revenue, profit, income, and cash flow?

People use these four terms loosely in everyday conversation, but each one measures something different:

• Revenue: Core business activity earns this money before subtracting any costs.
• Profit: Subtracting expenses from revenue leaves this amount—the actual financial gain.
• Income: People often use this term interchangeably with profit, though it can also refer more specifically to net income, the final bottom-line figure after every expense, tax, and adjustment.
• Cash flow: This tracks the actual movement of cash in and out of the business, no matter when the business earns revenue or incurs expenses. A business can be profitable on paper while still facing a shortage if customers haven’t paid their invoices yet.

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