Profit as a reward

Profit is the financial reward left after a business's costs are deducted from its revenue. Revenue is the income a business receives from sales. Costs are the expenses of running the business, such as materials, wages, rent and other bills. For example, a small business selling printed phone cases has revenue of £24,000 from sales. Its costs are £19,500 for blank cases, printing supplies, website fees, packaging and delivery. Profit is £24,000 − £19,500 = £4,500.

That £4,500 rewards the owner for the money they have invested and the time and effort they put into the business. If the owner works in the business, profit can also provide their income. Profit can be kept in the business and used as finance for reinvestment or future growth. The owner might buy a better printer, develop a new product range or open another outlet. This can help the business expand.

Profit is not guaranteed just because a business sells goods or services. It depends on revenue being greater than costs. A business can make sales and still make a loss if its costs are too high. For example, a stall selling handmade candles might take £900 in sales but spend £1,100 on wax, jars, stall fees and transport. It has made a loss of £200, so there is no profit to reward the owner.