Revenue is a business term for the amount of money that a firm receives from its ordinary activities in a given period, mostly from sales of products and/or services to customers. In other words this is operational revenue as it is the result of a firm's normal selling activities. Revenue is recognised either when the cash is received OR at the point of sale (if the goods are sold on credit). Revenue is also known as:
- Sales revenue
- Sales turnover
Revenue is basically "price x quantity" (the price for one item multiplied by the number of items sold), summed over all goods; if the price per unit varies with the quantity, then for each price per unit this multiplication is done, and the results are summed.
Revenue arises from sales made in cash and sales made on credit and must not to be confused with the term 'profits', which require costs to be deducted from revenues. Profit is calculated using total sales revenue, but it is important to understand the significance of credit sales. Sales turnover recorded in the profit and loss account includes credit sales and therefore profit is based on this figure. However, credit sales do not involve any cash transfer, so a firm's profits may appear to be healthy even if their liquidity (cash) position may not be so healthy, since the customer is yet to pay.
There are a number of different sources of income a firm may receive. Operational income (revenue) includes:
- cash sales using money, cheques or debit card
- credit sales (i.e. where the business has sold goods to customers, but has not yet received the cash)
A business may receive non-operational (non-sales) income from other activities and sources. Technically these incomes are not revenue, although it is quite common for these to be referred to as such. These incomes may include:
- interest received from cash deposits in financial institutions, such as banks
- royalties received for allowing other businesses to use their ideas
- dividends that the business receives on shares held in other companies
- fees for hiring-out the resources of the business to a third party
- grants from government for conducting certain qualifying activities, such as setting up a new business
- sponsorship from another organisation for promoting or displaying its brand name
- donations made to non-profit organisations of charities (NGOs) by personal or institutional donors