Income x Income: a guide for your business (2023)

Estimated reading time: 7 minutes, 35 seconds

Sales vs. Profit vs. Revenue – The terms may seem synonymous and sometimes even used interchangeably, but they tell different stories about a company. Sales growth indicates an expanding business and a coveted product, but whether there is financial gain for the company depends on revenue. Therefore, understanding the difference between sales and revenue is vital to the longevity of a business.

Let's take a closer look at how these terms are reported in accounting.


Revenue refers to the total revenue a company generates from its core businesses, such as selling products or services, renting a property,recurring payments, interest on loans, etc. Revenue calculations come before eliminating expenses like refunds and returns.

For example, the revenue of a SaaS company is generated byturning software, while a financial lender earns interest income from lending to borrowers. Other popular revenue models include:

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  • subscriptions– One of the most common SaaS revenue models, companies charge a customer a recurring fee to use their product or service; it can be monthly or yearly.
  • marks: Businesses that buy and sell rely heavily on markups, where they add a percentage more to the cost of the goods they buy in order to sell them at a profit.
  • License: A form of rental of goods and services, mostly of an intellectual nature. The seller retains all copyrights in the product or service used by the buyer.
  • advertising– Businesses turn their user traffic into revenue by providing space for the advertiser to feature their product anywhere on their platforms.
  • pay per user: The use of a product or service is measured and a fee is charged to customers each time they use the service. This model is common in a context of software and specialized content.
  • donation: Where businesses rely on donations from regular users to generate revenue. Think of the companies based on Kickstarter and Patreon.
  • Affiliate program: Businesses earn a commission for selling products by promoting referral links through their website and other online platforms.
  • Arbitration: This model uses the price difference in two different markets for the same good or service to make a profit by buying in one market while selling at a higher price in another.
  • commission: A business acts as an intermediary for a product or service, earning revenue from every transaction it conducts between two parties or from every lead it provides to the other party.
  • data sale: Businesses generate revenue by selling the data they collect about their consumers to other consumers or businesses.
  • direct sale website: Customers discover and pay for your goods or services through a digital medium.

The term revenue without a prefix refers to the gross revenue of a business. When a business experiences an increase in gross sales or revenue, it is said to be "revenue growth," meaning it can either generate revenue or offer a product or service that is in demand in the marketplace.

Capital gains, interest on investments, sales of assets, or other miscellaneous income are not considered income.


Also known as "net income" or "net profit," income is the total of a company's profits less expenses. It is calculated by subtracting the costs of doing business such as depreciation, interest, taxes and other expenses from the income.

Revenue is called the bottom line of the business because it gives a complete picture of cash flow. The term "bottom line" was likely coined as a result of net income being at the bottom of the income statement.

Because it gives an idea of ​​how efficient a company is in terms of spending and managing operating expenses, net income is considered the most important measure of profitability. For example, while your SaaS business may experience revenue growth fromSubscription managementand new service offerings, the amount you take home can be affected by overheads like high customer acquisition costs, employee compensation, and the like.

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The bottom line is that growth is always seen as a good thing, which is why an investor or bank will insist on comparing your company's sales to net income before giving you any money.

What is the difference between sales and income?

Let's compare the two based on different scenarios.

  • The definition
    when comparingIncome vs IncomeYou should know that "income" refers to the total amount of money a business generates before all expenses are deducted. “Income,” on the other hand, is equal to revenue minus the costs of doing business, such as depreciation, interest, taxes, and other expenses.
  • calculation
    Revenue is calculated by multiplying the total number of goods or services sold by the price of those goods and services. Alternatively, it could be calculated by adding up the total income from interest, rent, or services rendered over a period of time. Revenue is calculated by subtracting the company's costs and expenses from revenue. Expenses include overhead, commissions, taxes, etc. This also applies to revenue vs. profit.
  • annual accounts
    On a company's income statement, revenue is at the top, usually on the second or third line, while net number is on the penultimate or last line. The "lower limit". For this reason, revenue is also known as the superset of revenue and revenue as the subset of revenue.

Sales vs Revenue Examples

Still having trouble understanding the definition of income? A great example of revenue vs. revenue is looking at the financial results of an exemplary SaaS company, let's call it Company X.

In 2018, Company X had $1 million in sales and $500,000 in net income for the same period. The company's net income is always less than sales because it is total sales minus expenses for the period.

In 2019, Company X had sales of $1.2 million and net income of $800,000.

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The chief financial officer (CFO) cited the introduction of tiered pricing as a reason for the revenue growth. On the expense side, they were also able to save taxes.Automation of VAT compliancefor your e-commerce platform. The combination of new price levels and tax optimization resulted in a 60% increase in revenue.

Now let's look at a real life example of one of the most profitable companies in the world - Apple Inc. in reportsRevenues of $260 billion and net income of $55.3 billion.

Apple's revenue fell 2% year-over-year in 2019, while revenue fell 7%. Sales growth or decline at a company like Apple can be caused by anything from the launch, or lack thereof, of a new product or service to a new advertising campaign that drives sales. Similarly, an increase in sales could be the result of lower spending, e.g. B. the search for a cheaper supplier.

The above examples show how sales and revenue differ when referring to a company's finances.

The Future of Revenue: Subscription Revenue

Monthly recurring revenue is one of the most important sources of income you can generate for your business. exploitation of asubscription revenueThe model not only guarantees a consistent monthly income, but can also lead to a larger customer base.

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Consumers seek the simplicity and reliability of a subscription model that puts their purchases on autopilot so they have continuous access to SaaS products.15 percentof online shoppers pay for at least one subscription andnearly 90% of companiesare looking for ways to customize their online payment platforms to handle recurring subscription payments.

A business can generate subscription revenue through monthly plans or contract-based subscriptions, where a customer pays a monthly or annual fee but is bound by a term contract.

With all the software and digital products we continually use online, it's easy to see why subscription services are becoming more popular. For businesses, this revenue model offers unique advantages such as:

  1. constant rotation
    As mentioned above, subscription payments create a recurring payment cycle. This helps your company to get regular and more reliable sales figures and to improve forecasts. Reasons like these make a company more attractive to investors.
  2. It's easier to scale
    With the right underwriting tools, a business can go from 100 to 1,000 new customers without breaking a sweat. A subscription model can streamline the entire post-payment fulfillment process for every online purchase made through your website. For example Fast SpringsSubscription managementautomatically takes care of billing, payment processing, fraud protection, and tax administration.
  3. Increased customer retention
    With a subscription-based model, you can drive better customer relationships through collected usage data. The more you know about your customers, the better you can respond to their needs.

If you're looking to upsell your online business, take advantage of our easy-to-use, full-service eCommerce platform that supports any subscription-based billing model.

Grow your business with FastSpring

Understanding the relationship between your company's sales and revenue gives you a true picture of your company's reputation and allows you to analyze where you can improve.

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Are you looking for tools to optimize your income? Find out how FastSpring can help your SaaS business sell more, stay agile, and grow competitive. Create a free account today!


How do you calculate income for a business? ›

To start your calculation follow these steps:
  1. Calculate your total revenue.
  2. Subtract your business's expenses and operating costs from your total revenue. This calculates your business's earnings before tax.
  3. Deduct taxes from this amount to find you business's net income. Your net income will be your business income.

Should I pay myself a salary from my LLC? ›

Rather than taking a conventional salary, single-member LLC owners pay themselves through what's known as an owner's draw. The amount and frequency of these draws is up to you, but it's ideal to leave enough funds in the business account to operate and grow the LLC.

How does IRS determine hobby vs business? ›

These factors are whether:

The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records. The taxpayer puts time and effort into the activity to show they intend to make it profitable. The taxpayer depends on income from the activity for their livelihood.

What percentage should I pay myself from my business? ›

The SBA reports that most small business owners limit their salaries to 50% of profits, Singer said.

How do I calculate my income? ›

To calculate net income, take the gross income — the total amount of money earned — then subtract expenses, such as taxes and interest payments. For the individual, net income is the money you actually get from your paycheck each month rather than the gross amount you get paid before payroll deductions.

What are examples of income in a business? ›

9 different income examples
  • Employment income. Employment income refers to the money earned through working for an employer. ...
  • Business profits. ...
  • Tangible assets. ...
  • Intangible assets. ...
  • Capital gains. ...
  • Dividends. ...
  • Interest. ...
  • Rent-seeking.
Jul 8, 2022

Can I transfer money from my personal account to my LLC? ›

#1 Do not move money into and out of your business and personal bank accounts for anything other than business purposes. If you do, you will have pierced the veil and it can have issues for you later on if you ever run into tax trouble or legal trouble and need to keep your business separate from you.

What can I write off as an LLC? ›

LLC Tax Deductions Guide (What Expenses Can You Write Off?)
  • Expenses of Starting a Business.
  • Home Office Expenses.
  • Business Use of Your Car.
  • Business Meals.
  • Travel Expenses.
  • Education Expenses.
  • Business Interest and Bank Fees.
  • Medical Expenses.
Jan 17, 2023

What is it called when I pay myself from my LLC? ›

Starting a Business

As the owner of an LLC, you don't get paid a salary or wages. Instead, you pay yourself by taking money out of the LLC's profits as needed. That's called an owner's draw.

How many years can an LLC show a loss? ›

The IRS will only allow you to claim losses on your business for three out of five tax years. If you don't show that your business is starting to make a profit, then the IRS can prohibit you from claiming your business losses on your taxes.

How much money can you earn from a hobby before paying tax? ›

The pursuit of a hobby is not the same as carrying on a business for taxation purposes, which means that money derived from a hobby is not income and therefore is not assessable.

How does IRS verify business income? ›

The IRS receives a copy of the tax forms you receive, including Forms 1099, W-2, K-1, and others and compares those amounts with the amounts you include on your tax return. If they are not the same, there is a good chance you'll be audited.

What is the best way to pay yourself as a business owner? ›

Business owners can pay themselves through a draw, a salary, or a combination method:
  1. A draw is a direct payment from the business to yourself.
  2. A salary goes through the payroll process and taxes are withheld.
  3. A combination method means you take part of your income as salary and part of it as a draw or distribution.
Feb 10, 2023

How do most small business owners pay themselves? ›

Most small business owners pay themselves through something called an owner's draw. The IRS views owners of LLCs, sole props, and partnerships as self-employed, and as a result, they aren't paid through regular wages. That's where the owner's draw comes in.

Do I give myself a 1099 from my LLC? ›

If you choose to pay yourself as a contractor, you need to file IRS Form W-9 with the LLC and the LLC will file an IRS Form 1099-MISC at the end of the year. You will be responsible for paying self-employment taxes on the amount earned.

How do you calculate total income example? ›

The gross total income as reduced by the above deductions under Chapter VI-A is the total income. Total income = GTI – Deductions under Chapter VI-A ♦ It should be rounded off to the nearest multiple of ` 10. Tax is calculated on the total income of the assessee.

What are 5 examples of income? ›

  • Wages. This is income you earn from a job, where you are paid an hourly rate to complete set tasks. ...
  • Salary. Similar to wages, this is money you earn from a job. ...
  • Commission. ...
  • Interest. ...
  • Selling something you create or own. ...
  • Investments. ...
  • Gifts. ...
  • Allowance/Pocket Money.

What is the 3 types of income? ›

Three of the main types of income are earned, passive and portfolio. Earned income includes wages, salary, tips and commissions. Passive or unearned income could come from rental properties, royalties and limited partnerships. Portfolio or investment income includes interest, dividends and capital gains on investments.

Do I have to pay taxes on money I put into my business account? ›

You pay tax on your business income (profit) regardless of whether you leave it in the business account or move it to a personal account to spend it. (This situation may be different if you are a multi-member LLC or S-corp filing a corporate tax return, but I am not an expert on those situations.)

Can I use money from my business account for personal use? ›

Using your business bank account for your own expenses can expose you to potential legal and financial trouble. If your business is a corporation or an LCC , your personal assets are protected from professional liabilities if your business fails or is sued.

Can I deposit my own money into my business account? ›

Investing Money in Your Business

If your business is not a corporation, you can put money into your business by just writing a check and depositing it in the business bank account. The money should go into your individual capital account under the classification of owner's equity on the balance sheet.

Can I write off my car with an LLC? ›

If you use your car only for business purposes, you may deduct its entire cost of ownership and operation (subject to limits discussed later). However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use.

What deductions can I claim without receipts? ›

What does the IRS allow you to deduct (or “write off”) without receipts?
  • Self-employment taxes. ...
  • Home office expenses. ...
  • Self-employed health insurance premiums. ...
  • Self-employed retirement plan contributions. ...
  • Vehicle expenses. ...
  • Cell phone expenses.
Nov 9, 2022

How can an LLC avoid paying taxes? ›

As an LLC owner you're able to reduce taxes by:

Claiming business tax deductions. Using self directed retirement accounts. Deducting health insurance premiums. Reducing taxable income with your LLC's losses.

Is it better to be 1099 or LLC? ›

The biggest difference between an LLC and an independent contractor is the fact that LLCs are required to register with the state and form business documents like articles of organization. LLCs also offer liability protection that independent contractors would not have otherwise.

What happens if my LLC does not make money? ›

If an LLC elects to be treated as a partnership for tax purposes, and the business did not generate any income during the taxable year, it is generally not necessary to file a tax return, unless there are business expenses to be treated as credits or deductions.

Can you write off hobby expenses? ›

The good news is that the IRS lets you deduct a portion of your hobby expenses on your tax return. But you'll need to show that you're running a bona fide business to be eligible for more generous business tax breaks.

Can I write off LLC losses? ›

The LLC must file Form 1120-S. If you have sufficient basis in your LLC ownership interest, you can claim a LLC loss on your personal return.

How do I prove my hobby income? ›

Hobby Income and Expenses

If the activity is a hobby, you will report the income on Schedule 1, line 8 of Form 1040. The income won't be subject to self-employment tax.

Can a hobby have a business name? ›

Simply put, no. An ABN is not needed for a hobby. A hobby is a pastime or leisure activity conducted in your spare time for recreation or pleasure. The key element of this is that a hobby is conducted for pleasure, not for commercial gain.

Do you have to report hobby income to IRS? ›

If you earn hobby income, you must report the income on Schedule 1, Additional Income and Adjustments to Income. Schedule 1 gets attached to your Form 1040.

What are IRS red flags for small business? ›

Common IRS red flags include cash businesses, excessive losses, vehicle deductions, meal deductions and entertainment, home office deduction, and a reasonable salary. If you file any of the following IRS forms for your small business, you should keep this list of red flags in mind.

What triggers IRS audit for business? ›

Make sure you report all of your income to the IRS, including investment income or gambling earnings. Cash businesses, large amounts of foreign assets, and large cash deposits are some of the things that can trigger an IRS audit.

Can the IRS see your business bank account? ›

The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.

What percentage of income should I pay myself from my LLC? ›

A safe starting point is 30 percent of your net income.

If you're in a higher tax bracket or filing jointly with someone with a high income, your tax savings percentage may be higher. If you have an accountant or tax preparer, ask them what percentage of your net income you should save for your tax bill.

Should I pay myself a salary as a business owner? ›

Business owners should pay themselves if their business earns enough money to do so. Aside from affordability, there are also tax considerations and different payment methods to consider, depending on how you've structured your company. We'll help you decide when and how to pay yourself the right way.

Should I pay myself a salary from my business? ›

If your business is a corporation and you work in the business, you are an employee of the business and you should pay yourself a salary, with taxes withheld. You do not have to take all your compensation as salary—you also can take a draw or distribution.

Is it better to pay myself as a business owner? ›

It can be especially difficult when your business is just starting out, but it's important that you set yourself up for success and compensate yourself for the work you put into your business. One of the most important benefits of paying yourself is that it helps you build up your personal savings.

How much cash should I keep in my LLC? ›

How Much Cash Reserve Should A Company Have On Hand? According to experts, setting aside 3-6 months' worth of expenses is a good rule of thumb.

How much money should I keep in an LLC? ›

The common rule of thumb is to have a cash buffer of three to six months' worth of operating expenses.

How much profit should a business make in the first year? ›

The profit margin for small businesses depend on the size and nature of the business. But in general, a healthy profit margin for a small business tends to range anywhere between 7% to 10%. Keep in mind, though, that certain businesses may see lower margins, such as retail or food-related companies.

How much money does a small business make in the first year? ›

According to recent data from the Federal Reserve, the average small business brings in just under $53,000 each year before taxes. Of course, that's just an average, which means that some businesses make more and some make less.

Do I pay taxes on an owner's draw? ›

Since draws are not subject to payroll taxes, you will need to file your tax return on a quarterly estimated basis. However, all owner's withdrawals are subject to federal, state, and local income taxes and self-employment taxes (Social Security and Medicare).

How much do small business owners make? ›

The average income of small business owners

Here's the average salary for small business owners around the world, according to Payscale: US: $70,000.

What is the tax rate on owners draw? ›

Tax Implications

When you take an owner's draw, no taxes are taken out at the time of the draw. However, since the draw is considered taxable income, you'll have to pay your own federal, state, Social Security, and Medicare taxes when you file your individual tax return.

What is the most tax efficient way to pay yourself? ›

The most tax-efficient way to pay yourself as a business owner is a combination of a salary and dividends. This will allow you to deduct the salary from your business's income and pay taxes on it. If you are not paying yourself a salary, you will have to pay taxes on the profit of your business.

How do I pay myself from my small business? ›

You pay yourself as a sole proprietor, partner or corporation, depending on which of those is your tax structure. Sole proprietors and partners pay themselves simply by withdrawing cash from the business. Those personal withdrawals are counted as profit and are taxed at the end of the year.


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