Although they sound similar, sales and profitability should not be confused!
Sales refer to the amount of money a business has earned through the sale of products and services alone. Managing sales means following the absolute amount of income a company incurs during a given period.
On the other hand, profitability is the main goal of every business. Profitability indicates how efficiently a company generates sales and allocates spending. Because profitability is a measure of efficiency and sustainability, it ultimately determines whether a business will succeed or fail.
Profitability is a businesses ability to maintain financial health without relying as much (or at all) on outside financial support. With a profitable company, you have the agency to deliver and market your product or service, pay your bills, and pay your employees based largely on the income you’re earning rather than constantly borrowing and accruing debt.
Remember, when determining the worth of an investment in a business, investors cannot rely on understanding sales alone. Instead, an analysis of a company’s profitability is necessary to know if the company is efficiently utilizing its resources effectively - whether the business is profitable or not.
No matter the size or scope of the business, a company’s main goal is to make sales and be profitable. However, sales do not calculate profitability nor predict the longevity of a business alone.