What is revenue?

Revenue is the total amount of money that a business makes over the course of a certain period of time. Also defined as the net income of a business, revenue is the money that is made from sales of goods or services. It can also refer to any other income made from business operations, like dividends or investments. 

As a figure, revenue doesn’t take into consideration any bills or expenses that the company has incurred. It’s used to measure the financial health of a business, as it focuses on showing how well the company is doing in its market. 

Let’s say that an online home decor shop has had a year of high revenue. This indicates that the store is doing well, customers are buying the products, and that the business is growing. 

On the other hand, if the home decor shop is only making a handful of sales per month and its revenue is low, it means that the business isn’t sustainable or isn’t growing.

In short, revenue is one of the main wellbeing indicators for a business. It gives a clear indication of how well the business is doing and whether there are any red flags that should be a cause for concern. 

Examples of revenue

For a clothing retail business, gross revenue is the total amount of clothing items sold, as well as any accessories, gift cards, or loyalty club memberships, sold. 

For a graphic designer’s revenue definition, you’ll be looking at the total amount of money made from projects, template licensing, recurring design changes to websites and flyers, and consultancy appointments with clients. 

For a charity, revenue is all the money made from donations, government grants, membership fees, and fundraising events. 

And for a governmental organization, revenue is made from taxation, all kinds of fines and fees, user rights to resources (think mining or agriculture), and any other sales made in form of licenses, grants, and permissions. 

How to calculate revenue

In most cases, the total revenue of a business can be calculated as: 

Sales price * number of sales units sold 

Let’s take an online watch store as an example. 

If the watch store sells its watches for $90 and sells 500 watches over the course of three months, the total sales revenue for that quarter is $45,000. 

It’s important to understand that revenue isn’t a number that shows the overall profit of a company. 

Instead, it measures how well the business has been performing in the market. Sometimes, a high revenue accounting year can be a good indicator for a business to invest in growth. 

So, if the watch store keeps selling 500 watches every quarter, its revenue for the whole accounting year will be $180,000. 

Such good revenue could allow the watch store to up their marketing spend for the next accounting year, for example.

What is the difference between revenue and income (profit)

As per our definition, revenue means the total amount of money made through business activities like product or service sales. 

If you look at a company’s income statement, revenue typically sits at the very top. This revenue line indicates the company’s total amount of sales made in an accounting period. 

Don’t let the name fool you, though. Even in an income statement, revenue is still used to refer to the money that has been made before any expenses, like employee salaries, are taken into account. 

Net income, on the other hand, also known as the bottom line of the income statement, is the money left after all of the expenses are accounted for and subtracted from the company’s revenue. 

Net income is the same as the company’s net profit and is usually the figure used by investors and analysts when they talk about how much money a company is making. 

It’s the money that’s left over after the company has paid all its expenses (salaries, taxes, licenses, rent) from the income received from the sales activities (the revenue).

It’s important to look at both revenue and net income to understand if the company is financially ‘healthy.’

Looking at a company’s revenue is a great place to get an idea of how well it’s doing in the market. But it’s just as important to understand what the difference between revenue and net income is. 

It could be that a company has huge monthly revenue, but actually operates at a loss due to high expenses.

Net income is also known as net profit or operating income. Together with revenue, it helps to understand where the company’s profits and losses are coming from.

Types of revenue

When it comes to business revenue, it can be categorized as:

• Operating revenue. This type of revenue comes from the company’s main activities, like its product sales. If you run a plumbing business, the operating revenue for your business comes from your plumbing services. Similarly, if your eCommerce business sells books online, your operating revenue consists mainly of your book sales. 

• Non-operating revenue. Non-operating revenue means the revenue made from activities that are unrelated to your day-to-day operations. For example, earning dividend income or profits from investments would be classified as non-operating revenue. You should always make sure your main stream of revenue is stable and healthy. 

• Unearned revenue. In financial statements, this type of revenue covers the money that has not yet been delivered or provided to your accounting. It’s also called deferred revenue or advance payments. This revenue isn’t counted towards your company’s assets, but is, instead, regarded as a liability. If you’re a consultant, for instance, this could refer to the revenue you’ll receive once a project is completed. 

• Marginal revenue. This type of revenue simply means the extra revenue generated from selling more than one sales unit in one sales transaction. For an electronics store, this could mean being able to sell another item (a mousepad) on top of the main product (a wireless computer mouse).