March 28, 2022
Business revenue is a company’s total income from selling goods or services. Sounds simple enough, right? But just like most things business-related, there’s a lot more to understanding business revenues than meets the eye. In this post, we’ll get you up to speed on the basics so you can calculate, manage and optimize your revenues and grow your business with confidence.
Revenue is the total amount of money a business receives from selling products or services before any expenses are subtracted. Revenue is different from income which refers to the profit earned after expenses are deducted from gross revenue. This is an important distinction because these terms are often used interchangeably despite referring to different concepts.
Business revenues can come in various forms, but they are divided into two main categories - operating and non-operating revenue.
Operating revenue is revenue generated by a business from its day-to-day “core” activities. That said, the way revenue is generated is dependent on the type of business. For example, the operating revenue for a clothing retailer is the sale of clothing. On the other hand, the operating revenue of an accountant is from the sale of accounting services.
Non-operating revenue is not directly generated by a company’s day-to-day “core” activities. Common examples include interest, rent, dividends, royalties, foreign exchange transactions, and an asset or equipment sale. From an accounting perspective, because this type of revenue can significantly impact a company’s earnings, non-operating revenue must be disclosed separately from operating revenue.
Although operating and non-operating revenue are two essential terms to understand, you’ll need to get familiar with a few others.
Accrued revenue is revenue earned by a business that hasn’t been invoiced to the customer yet. In accrual accounting, there are two core components or principles to understand:
Revenue recognition: This principle states that revenue is recognized when earned, not when payment is received.
Matching: This principle states that expenses should be recorded in the same accounting period as the revenue they helped create.
Accrued revenues are entered as an adjusting journal entry under current assets on the balance sheet.
Deferred or unearned revenues are payments received in advance for goods or services that haven’t been delivered or provided yet. Unlike accrued revenues entered under current assets on the balance sheet, deferred revenues are entered as a liability.
Annual revenue is the total amount of money generated over 12 months. It includes operating and non-operating revenue but doesn’t account for costs and expenses.
Marginal revenue refers to the increase in revenue that results from a one-unit increase in production. Marginal revenue helps businesses determine whether or not additional production costs outweigh the benefit of selling more units.
Businesses earn operating revenue by selling goods or services. For example, the operating revenue of a grocery store comes from the sale of its various grocery products. For service providers such as an accounting or consulting firm, operating revenue is generated from selling services to clients.
Total revenue or gross revenue is the total amount of money a company earns from selling its products or services over a certain period. To explain this, let’s use a software business that sells marketing software as an example. The company has two revenue streams, including monthly software subscriptions and consulting services. In this case, the total revenue equals the sum of these two different revenue streams over a chosen period.
Tracking total revenue is critical because it enables a business to assess growth. It also provides insights into what parts of a company are working and which parts aren’t. Furthermore, understanding total revenue makes it possible to produce better forecasts and more accurate budgets for expenses.
Digital business revenue models have come a long way since their origins in the early days of the internet. Here are a few popular methods used by digital businesses to generate revenue today.
This is the simplest and most common model. Here, revenues are generated by selling products or services online. Whether clothes, boats, or accounting services, any business selling online generates e-commerce sales revenues.
Subscriptions are just agreements between a customer and a digital business to pay for a product or services upfront on a recurring basis. Well known companies like Netflix and Spotify use this model but they are certainly not alone. Today millions of businesses make their money from subscriptions.
The transaction fee revenue model is a way to generate revenues by charging a fee for every transaction. Although fees can seem relatively minor when looked at individually, if a digital business has thousands of customers making thousands of transactions every day, revenues can really start to add up! An excellent example of this is Amazon, which charges sellers a fee whenever an item is sold, or PayPal, which charges users a fee for transferring money.
Sponsorships can be a great way to earn additional revenues. With this model, a business makes revenues by enabling another company to display content on its website or social media channels. The more traffic a site gets, the more money a business can charge for each sponsorship. Sponsorships come in various forms, from just a logo or blog post to a video, social media post, and advertisement.
Like site sponsorships, revenues from affiliate marketing provide businesses with a way to earn passive revenues. The concept is pretty simple. Any digital business can generate extra revenues by promoting and selling another company’s product/s on its website or platform. When products are sold, the affiliate business gets paid a share for the referrals.
Revenue represents the amount of money generated by the sale of goods or services in a specific period. There is a simple formula to calculate revenue:
Revenue = Price of goods x no. of units sold (without deducting any expenses associated with producing these goods/services).
For example, If Company ABC sells 1000 products for $100 each, revenues would be $100 x 1000 = $100,000.
Whether you run a small start-up or established business, at some point, revenue growth will become your primary concern. The good news is there are several ways to boost your sales and revenues you can start implementing right away.
Raising the prices of your goods or services is an obvious and proven way to increase business revenues. Naturally, higher prices will increase revenues, but raising prices is tricky. To avoid losing current customers, you’ll need to do some research and testing to find what customers are actually willing to pay.
Once you have feedback, you can then set a price within the range of what your customers will accept. Of course, you’ll need to effectively communicate this price rise prudently. It’s best to sell the price change as a benefit alongside an announcement that you’ve improved the quality of your product or service.
An intelligent way to increase your sales and revenue is to create effective marketing strategies. There are an almost endless number of techniques and channels you can use to promote your product or service and boost sales. These include everything from your company website and PR to PPC advertising, social media, email, and content marketing.
Upselling or cross-selling current clients can be more cost-effective to increase business revenues than finding and converting new customers. See if your existing customers are interested in buying more of what you have by reaching out to them with special discounts and offers. By doing so, you’ll not only potentially get new sales (thereby increasing revenues), but you’ll also increase customer loyalty.
Bundling is a tried and tested strategy to increase sales without adding costs. All that’s required is to bundle complementary products or services together and sell them as a single product for a single price. By doing so, customers are encouraged to buy more, increasing your average order value and boosting revenues.
Many businesses struggle to hit their growth targets not necessarily because of a lack of effort but because they have structured their goals incorrectly. SMART goals ensure goals are clearly defined and reachable and are helpful when trying to create and hit revenue growth objectives.
Specific: What needs to be accomplished? The less specific a goal, the harder it is to determine how long it should take to complete or measure success.
Measurable: What determines success? Making sure goals are measurable makes it easier to track progress and understand when a goal has been reached.
Achievable: How will the goal be achieved? Ensuring you have the resources and capabilities needed to achieve success is critical. If a goal is unclear or complex, split it into more manageable sub-goals.
Relevant: Why are you pursuing this goal? Does it fit in with your key business growth objectives? Ensure you seek the right high-value goals that match your overall business objectives.
Time-bound: What’s your time frame to achieve this goal? Setting a specific date by which a goal should be achieved helps provide an incentive and makes monitoring progress far easier.
Most business owners take a conservative approach to growth. But to really grow your revenues substantially, you’ve got to think bigger. That’s where the 10x vs. 10% rule comes in. 10x vs.10% is about maximizing your results ten times over, rather than by just 10%. It’s a mindset or way of thinking that can help you grow your revenues more than you ever thought possible. Try to avoid the 10% mindset and incorporate 10x into everything you do and your business goals. This means spending less time on trivial tasks and steps that don’t contribute to growth and more time moving quickly with tasks that provide value to customers and increase sales.
Banks consider several factors when deciding to grant your business a loan. One of these factors is the trend of revenue over time. Analyzing revenue trends helps banks determine if your business has enough revenues to make payments for the life of the loan. Naturally, banks prefer to lend to growing companies because they are less likely to default on their debts. Of course, the revenue trend is also helpful for you to understand the trajectory of your business, regardless of whether you need a loan or not.
Calculating business revenue trends, whether annually, quarterly, or monthly, as a percentage is pretty straightforward. The revenue growth formula is (Current Period Revenue – Previous Period Revenue) / Previous Period Revenue.
Here’s an example. (December 2021 Revenue – January 2021 Revenue) / January 2021 Revenue
$1,000,000 - $750,000/$750,000 = 33%.
Therefore, revenue growth between January to December 2021 equals approximately 33%.
As a merchant, when you use Pay.com, you’ll have access to several tools and features to enhance your customers’ payment experience and optimize revenues.
Pay.com uses a smart routing system that selects the most optimal and cost-effective route for every transaction. By doing so, you can dramatically increase your approval rates and boost your revenues. You'll also reduce fraud rates and avoid high transaction fees that take a bite out of your profits.
Pay.com gives merchants the ability to view advanced insights and real-time data on an easy-to-understand dashboard. Armed with granular customer data, you can better understand which areas need improvement and make business decisions that increase customer satisfaction, retention, and revenues.
Pay.com enables you to offer your customers way more than just credit cards. With Pay.com, you can choose from popular local payment methods and quickly request to add new local options when you need them. As a result, your customers can enjoy a more convenient and familiar experience that boosts revenues.
Pay.com enables you to deliver customers a quick and easy checkout experience that boosts conversion rates and revenues. With Pay.com, you can securely store customer payment preferences and details, so your returning customers don’t have to reenter all their payment information making the checkout process fast and convenient.