What is Revenue in Business?
Revenue is a common term used in business, but its meaning can seem quite ambiguous to a novel business owner. Before delving into what revenue is for a business and ways to grow your revenue, let’s discuss some common terminology.
How Does Revenue in Business Affect You?
Revenue, gross revenue or gross sales are interchangeable terms that refer to the total income that your business generates through its services or the sale of products (or both!)
Revenue can be found at the top of your income statement and is even referred to as the ‘top line’ due to this placement. It’s the most significant sum you will find on your income statement and can be an exciting vision for your business.
How Does Income Differ from Revenue?
Revenue is not synonymous with the company income/net income, but they are vital in determining a business’s financial situation.
While revenue covers the whole amount a business receives, it doesn’t factor in additional costs such as employee payments, taxes or production fees. It is the total sum a business has generated over a certain period without factoring in any expenses.
Income is the sum that signifies the profit a business is making. These are the leftover funds – the accurate balances.
How is Income Calculated?
Income is the most central part of the information for understanding the finances of a business. Income is calculated by taking the revenue sum and subtracting the costs of operating your business.
These costs can look like, but are not limited to, these examples:
- Asset depreciation
- Employee salaries
- Operating costs – utilities, internet etc.
- Production costs – machinery, supplies etc.
How Does Being Aware of Your Revenue Help your Business?
Knowing a company’s revenue is crucial as it is the best indicator of how successful a company is, not necessarily in a financial sense, but within their industry. The revenue sum suggests the businesses ability to push their products and/or services and shows how desirable they are on the current market.
What is the Aim of My Business?
It should be the aim of every business to increase their revenue. More so, this should be followed by analysing your expense reports and finding ways to reduce superfluous expenditures and generate more profit.
Having a diverse and committed clientele is your business’s goal, as it is the quickest way to generate sales and increase your revenue. The more people your company can reach in the early stages of your business, or with the release of a new product or service, the higher the chance that your revenue will grow. This is because exposure often generates sales.
How is Revenue Calculated?
To recap, revenue depends on two things – the number of sales and the price of sales. A simple way of presenting this is:
price x quantity = revenue
For example, if your business has sold 1,000 items for £25 each, their revenue calculation would look like this:
£25 x 1,000 items = £25,000
Having a consistent time frame helps to cross-reference revenue over a certain period. For example, if you note down your revenue every month for six months, you will be able to analyse the data and see your highest or lowest performance and adapt accordingly.
Knowing your revenue and how it fits into your business is a core part of understanding your businesses ability to succeed – don’t disregard it!
Want to know the difference between revenue and income? Find out here and here!
Other useful links from our knowledge centre:
Can a Business Refuse Cash?
How Does Brexit Affect Business
What is Liquidity in Business?
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