Running an eCommerce business is not as easy as it’s cracked up to be.
There are plenty of online gurus prepared to shout from the rooftop about the tens of thousands of dollars that can be achieved in sales each month.
However, there are few prepared to talk about the associated costs incurred to achieve those sales.
So, as an eCommerce seller, it’s crucially important that you understand the difference between revenue and profit. Here, we’ll examine what revenue REALLY means!
Put simply, revenue is the income generated from the sale of goods or services. It could also include income from any other use of capital or assets that are associated with the main operations of an organisation, but always BEFORE any costs or expenses are deducted.
Revenue is usually shown as the top item in any income statement, and it's the figure from which all charges, costs and expenses are subtracted to arrive at a net income figure. We’ll compare net income to profit in another article … but for our purposes here you should know that net income isn’t profit … it simply deducts from your revenue figure those costs associated with the sale … known as the cost of sales.
Revenue is also often referred to as sales or turnover - it represents the income received from a business’s normal activities - usually from the sales of goods or services to its customers – but also sometimes it can represent income from royalties, interest, injections of capital and other fees.
Revenue is usually received in the form of cash or a cash equivalent.
You may have heard the phrase “turnover is vanity – profit is sanity”. That’s because assessing a business on its revenue is a fool’s errand. $100,000 of sales each week may seem on face value to be highly impressive. However, if the costs involved in achieving those sales exceeds $100,000 – the business is making a loss!
Look out for our next article, where we’ll be examining the financial elements in assessing the profitability of a single product, and introducing you to a simple tool Profitizer have devised to help you do so.
A word from the author:
Our software Profitizer, is an app that makes it easier for eSellers to understand their marketplace profit & loss data from the top of their business right through to individual or grouped product profitability. For Amazon, eBay, Etsy and other marketplace sellers, Profitizer is “Profit and loss, made simple”.
Find out more: https://www.profitizer.app
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