Revenue (or turnover) is the total value of goods and services sold over a period. It is the first figure people look at, yet far from the most important.

Watch out for the trap

Large revenue does not mean making money. What counts is what is left after costs. That is where margin comes in.

• Gross margin: selling price − cost of goods sold.
• Margin rate: margin expressed as a percentage, so figures can be compared.
• Rising revenue with a shrinking margin can hide a real problem.

Example: selling a product for 100 that cost 90 leaves a margin of 10. Selling the same item for 100 when it cost 40 leaves 60. Identical revenue, very different situations.

Key takeaway: revenue tells you how much you sell, margin tells you how much you earn. Watch the margin first.