MINTRevenue vs profit
Why a busy business can still be losing money, explained with a chop bar, plus margins, break-even and how to use them.
Read at your own pace. A video for this lesson is on the way.
A simple explanation
Revenue (also called sales or turnover) is all the money that comes in from selling your goods or services. Profit is what is left after you pay the costs of running the business.
- Gross profit = revenue minus the direct cost of what you sold (ingredients, stock, materials).
- Net profit = gross profit minus all other costs: rent, wages, transport, data, electricity, licences, loan interest and tax.
Revenue shows how busy you are. Profit shows whether the business actually works.
Example: the chop bar
A chop bar sells GHS 30,000 of food in a month.
| GHS | |
|---|---|
| Revenue (sales) | 30,000 |
| Ingredients and gas | −18,000 |
| Gross profit | 12,000 |
| Rent | −3,000 |
| Two staff | −4,500 |
| Electricity, water, transport | −2,000 |
| Packaging and other costs | −1,000 |
| Net profit | 1,500 |
The tables were full and the cash box looked heavy, but the owner kept only GHS 1,500, which is 5% of sales. If the owner has not paid themselves a salary, the real picture is worse.
The margins
A margin shows how much of each cedi of sales you keep.
- Gross margin = gross profit ÷ revenue = 12,000 ÷ 30,000 = 40%
- Net margin = net profit ÷ revenue = 1,500 ÷ 30,000 = 5%
So for every GHS 100 the chop bar sells, GHS 40 pays for the running of the business and owner, and GHS 5 is left as profit.
Break-even: how much must you sell?
Your fixed costs stay the same however much you sell (rent, staff, and so on). Your variable costs grow with sales (ingredients).
In the example, fixed costs are GHS 10,500 (3,000 + 4,500 + 2,000 + 1,000). The gross margin is 40%, so each GHS 1 of sales leaves GHS 0.40 to cover those fixed costs.
Break-even sales = fixed costs ÷ gross margin = 10,500 ÷ 0.40 = GHS 26,250 a month.
Below that amount, the chop bar loses money. Above it, each extra cedi of sales adds GHS 0.40 of profit. Knowing this number tells you how much you must sell before you earn anything.
Markup is not margin
These two are often confused, and getting them wrong leads to under-pricing.
- Markup is the percentage you add to cost. A dish that costs GHS 10 and is sold for GHS 15 has a 50% markup.
- Margin is the percentage of the selling price you keep. On that dish, GHS 5 ÷ GHS 15 = 33%.
A 50% markup gives only a 33% margin. Decide which one you are talking about before you set prices.
Ways to improve profit
- Raise prices carefully. Even a small increase matters. If the chop bar raised prices by 5%, sales would rise by GHS 1,500, and nearly all of it would fall to profit.
- Cut waste. Food cost is often the biggest line. Track what is thrown away.
- Negotiate with suppliers or buy in bulk where it makes sense.
- Sell higher-margin items and push them, for example drinks or sides.
- Control fixed costs, such as staffing hours that do not match busy times.
- Watch the owner's pay. Put yourself on a fixed salary so the profit figure is honest.
Profit is not cash
A business can be profitable and still run out of cash. If customers owe you money, or you buy a lot of stock in advance, the cash may not be there when bills are due. Keep track of cash flow as well as profit, and keep your business and personal money in separate accounts or mobile money wallets.
Why it matters
Many owners judge success by sales. Knowing your real profit tells you whether to raise prices, cut costs, or grow. It also helps if you want a bank loan or investor, because they will ask for your profit, not just your sales.
Key things to know
- High revenue does not mean high profit.
- Track costs every month, not just sales.
- Profit margin = profit ÷ revenue. It shows how much you keep from each cedi of sales.
- Pay yourself a salary as a cost, so the profit figure is honest.
- Know your break-even point.
- Use the business profit calculator with your own numbers.
Risks to consider
- Mixing personal and business money hides the true profit.
- Profit on paper is not the same as cash in hand if customers owe you.
- Cutting quality to save costs can lose customers.
- Raising prices too fast can cost you customers, so test in small steps.
Key takeaway
Revenue is what comes in. Profit is what you keep. Know your margins and your break-even point, and run your business on profit.