Revenue vs. Income

One of my pet peeves is when talking to a business owner or potential business owner and they don’t understand the difference between revenue and income. There is a huge difference and direct sales companies draw on the confusion to recruit agents.

So, what is income? According to Wikipedia, income is:

“Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms.

For households and individuals, income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received.

For firms, income generally refers to net-profit: what remains of revenue after expenses have been subtracted.”

Staying with Wikipedia, revenue is:

“In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers.”

So, as you see, revenue is money received before expenses and income is money received after all expenses have been deducted. It is imperative that as a business owner, or potential business owner, that you understand the difference between the two. If you don’t, engage an accountant or business coach to help you. After all, it is YOUR livelihood that is at stake.

Chances are, if you don’t understand this basic principle, you shouldn’t be a business owner. This is the beginning accounting principle that all others grow from. Looking at revenue, a business may look good, but when looking at income it could be in deep trouble. I have personally seen many a direct sales agents show their commissions statement as proof of income. They looked like they were making a lot of money. After they deducted their expenses, the picture changed. They went from looking good to in the red. So, you need to understand the difference and how it affects you.

Finally, if you don’t understand this principle (or any other business principle), engage an accountant or business coach outside the organization that you are with. By them being outside of the organization, they don’t have a conflict of interest. When you only get your information from the same people that recruited you, they have an financial in you. That is a conflict of interest.

Let me know what you think by leaving a comment.


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