What's the Difference Between Revenue and Profit?

Understanding how revenue comes into a business and turns into profit is imperative for an investor. Here's how it all works, along with unique cost structure examples.

By Kristi Waterworth – Updated May 19, 2026 at 1:30 PM EST | Fact-checked by Frank Bass

Key Points

Revenue is total income pre-expenses; profit is what remains post-expenses.
Different profits (gross, operating, net) provide insights into a business's financial health.
Understanding profit margins and types helps investors evaluate company performance effectively.

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

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Let's go over the different types of profit, starting at the top.

Gross profit: The first type of profit is gross profit. Gross profit is equal to revenue minus cost of goods sold. The costs of goods sold vary by industry but follow the same general concept -- they are the direct costs tied to sales. For a company such as Target (TGT -1.03%), the cost of goods sold would include the cost of inventory and labor hours in stores. A company's gross margin gives you a good idea of how much it can mark up its goods or services from the prices it's paying to suppliers.
Operating profit: The next one down the line is operating profit. Think of operating profit as gross profit minus overhead. Most other types of expenses that are key to operations -- such as rent, administrative salaries, and insurance -- are classified as operating expenses. Operating profit shows you how much money the core business is earning.
Net profit: Net profit is what's left over after all other expenses are deducted. This includes taxes, interest expenses, and one-time items such as legal settlements. These expenses can vary greatly from year to year. The other expenses also aren't tied to business core operations, so they don't fit into the cost of goods sold or operating expenses categories. Net profit (and the earnings-per-share version, or EPS) is the number most followed by the stock market. Understanding that net profit may be volatile even when gross and operating profit are consistent can give you a leg up on other investors.

Once you get the hang of evaluating financial statements, the differences in these numbers will be second nature. As a beginner, the most important thing to remember is that revenue is the top-line number that shows how much money the company has earned during the period. Profit is what's left over after all expenses are covered.

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Source: Yahoo! Finance as of May 13, 2026.
FY2025 (ending Jan. 31, 2026)	Dollar Amounts	Percentage
Revenue	$104.78 B	100%
Cost of Revenue	$75.511 B	72%
Gross Profit	$29.269 B	28%
Operating Expenses	$24.152 B	23%
Operating Income	$5.117 B	5%
Other Expenses	$1.412 B	1%
Net Income	$3.705 B	3.5%

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Target produced $104.78 billion of revenue in the fourth quarter of 2025. On average, $0.72 of every dollar went to cost of goods sold. That means, on average, the stuff you bought from Target costs them about 72% of what you paid, leading to a gross profit of $29.269 billion, or 28%.

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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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Next, $24.152 billion, or 23% of revenue, went to operating expenses. For retailers like Target, it's normal for overhead to cost much less than the direct cost of goods sold.

Finally, taxes and other expenses amounted to $1.412 billion, bringing Target's net profit, the bottom line, to $3.705 billion, or 3.5% of revenue.

Now let's look at DocuSign (DOCU -7.24%):

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Source: Yahoo! Finance as of May 13, 2026.
FY26 (ending Jan. 31, 2026)	Dollar Amounts	Percentage
Revenue	$3.2195 B	100%
Cost of Revenue	$663.062 M	21%
Gross Profit	$2.556 B	79%
Operating Expenses	$2.258 B	70%
Operating Income	$298.579 M	9%
Other Expenses	$10.488 M	0.3%
Net Income	$309.085 M	10%

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DocuSign isn't nearly as big as Target; its quarterly sales came to $3.2 billion. About 21% went to cost of revenue, producing a $2.5 billion gross profit, which was 79% of revenue.

The gross profit margin seems great until you see the operating expenses, which were not much lower than the gross profit at $2.258 billion. Even so, it's a company that produced $3.2 billion in revenue with $309 million in profit (about 10%). It has recently become profitable, but its balance sheets are still a wild ride.

DocuSign's business model is completely different than Target's, and it shows in the income statement. DocuSign sells subscriptions to its valuable software services. Target buys products from other businesses, marks them up about 30%, and sells them in brick-and-mortar stores.

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Due to this difference in business models, the cost structure is also completely different. Most of Target's expenses are in cost of revenue because it has to pay for the inventory it sells. DocuSign's cost of revenue is much lower as a percentage of revenue because it has few direct costs per sale.

Operating expenses are the opposite. Target just pays for the overhead it needs to keep going, while DocuSign is investing in things that help it grow, like product research, which is not a large line item for a retailer like Target.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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Kristi Waterworth has positions in Target. The Motley Fool has positions in and recommends Docusign and Target. The Motley Fool has a disclosure policy.

Revenue vs. Profit: What's the Difference?

Understanding how revenue comes into a business and turns into profit is imperative for an investor. Here's how it all works, along with unique cost structure examples.