What's the Difference Between Revenue and Profit?

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A business person calculating profit from revenue. — Image Source: Getty Images

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Source: SEC 10-Q.
Oct. 31, 2021 (numbers in millions)	Dollar Amounts	Percentage
Revenue	$25,652	100%
Cost of Goods Sold	$18,206	71%
Gross Profit	$7,446	29%
Operating Expenses	$5,436	21%
Operating Income	$2,010	8%
Other Expenses	$522	2%
Net Income	$1,488	6%

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Target produced $25.7 billion of revenue in the third quarter of 2021. On average, $0.71 of every dollar went to cost of goods sold. That means, on average, the stuff you bought from Target costs them about 71% of what you paid, leading to a gross profit of $7.5 billion, or 29%.

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Operating Expenses

Costs incurred in running a business's daily activities, like rent, utilities, and salaries, excluding costs directly tied to production.

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Source: SEC 10-Q.
Dec. 31, 2021 (numbers in thousands)	Dollar Amounts	Percentage
Revenue	$545,463	100%
Cost of Goods Sold	$115,975	21%
Gross Profit	$429,488	79%
Operating Expenses	$432,846	80%
Operating Income	($3,358)	-1%
Other Expenses	$2,318	0%
Net Income	($5,676)	-1%

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Because of this business model difference, the cost structure is also completely different. Most of Target's expenses are in cost of goods sold because it has to pay for the inventory it sells. DocuSign's cost of goods sold is a lot lower as a percentage of revenue because it doesn't have many direct costs related to each sale.

Operating expenses are the opposite. Target pays for the overhead it needs to keep going, while DocuSign is investing in overhead. It paid $400 million in this quarter alone on research and development and sales costs. It is plowing all its gross profit into future growth, and the operating loss reflects that.

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About the Author

Mike Price is a 23 year-old Masters of Finance graduate who first started learning about investing on the Motley Fool when he was 13. He is currently seeking a job.

XMFMichaelPrice

Mike Price has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Docusign and Target. The Motley Fool has a disclosure policy.