Revenue tells you how much money the business generated from sales. It does not tell you how much the business actually earned.
Start with four numbers
- Revenue: total sales.
- Cost of sales: what the sold products or services cost you.
- Gross profit: revenue minus cost of sales.
- Net profit: what remains after operating expenses.
Simple example: If sales are KES 6,050, cost of sales is KES 2,210 and expenses are KES 2,000, net profit is KES 1,840.
Why revenue alone can mislead you
A busy day can create confidence because money is entering the business. But suppliers, stock usage, rent, transport, wages, commissions and other expenses still have to be paid.
What to review every week
Look at sales, gross margin, expenses and net profit together. If revenue rises while profit falls, investigate product costs, discounts, wastage or operating expenses.
Make the numbers easy to see
The strongest system is one where sales, stock and expenses are connected rather than maintained in separate notebooks or spreadsheets.