Revenue: What it is, how to track it, and why it matters for your small business

Published Thursday 27 November 2025

Table of contents

• What is revenue in accounting?
• Why tracking revenue is important for your small business
• Types of business revenue
• What is revenue recognition?
• Revenue vs profit: Key differences
• Revenue vs income: Key differences
• How to calculate revenue
• Best practices for effective revenue tracking
• Unlock your business potential with Xero
• FAQs on revenue

Key takeaways

• Track your revenue daily using accounting software or POS systems to maintain accurate records, prevent costly mistakes, and gain reliable data for making informed business decisions.

• Calculate net revenue by subtracting discounts, returns, and allowances from gross revenue to get a realistic picture of the money you actually keep from sales.

• Recognize that high revenue doesn't guarantee profitability—monitor both revenue and expenses to ensure your business remains financially sustainable and avoid operating at a loss.

• Categorize your revenue by product lines, sales channels, and customer segments to identify your most profitable areas and make strategic decisions about pricing, investment, and expansion.

What is revenue in accounting?

Revenue is the total money your business brings in from sales before any expenses are deducted. It's also called sales or turnover.

Revenue comes from:

• sell products, for example, a bakery selling bread and pastries
• provide services, for example, a freelancer earning money from consulting work
• collect subscription fees, for example, monthly payments from customers

You use revenue to calculate profit and measure your business performance.

Why tracking revenue is important for your small business

Revenue tracking shows how much money flows into your business before expenses, giving you the data needed for smart decisions.

Key benefits include:

• track progress toward your financial goals
• predict future earnings based on trends
• make informed decisions about pricing, investment, and expansion
• spot problems before they become critical

Drive business growth

Steady revenue growth helps you reinvest in your business, expand, and attract investors.

For example, a bakery with steady income might open a second location, upgrade equipment, or add new products.

Measure performance

Tracking revenue allows you to monitor progress toward financial goals. Ask yourself:

• Are you meeting your revenue targets?
• Where can you improve?
• Which areas contributed most?

Benchmarking against the market can also give you useful insights. See Xero Small Business Insights for more information.

Gain insights and identify trends

Revenue data helps businesses make smarter inventory, marketing, and product development decisions by identifying key patterns:

• Are sales increasing or decreasing?
• Which products are performing best?
• Are seasonal factors affecting your revenue?

Make informed business decisions

Data-driven decisions lead to better business outcomes. Revenue tracking helps you determine:

• Should you adjust your pricing strategy?
• Is it time to invest in new equipment?
• Are you ready to expand into new markets?

Revenue is not the same as profitability. Learn more about increasing revenue.

Types of business revenue

Businesses generate revenue through different channels, which fall into two main categories: operating revenue and non-operating revenue.

Operating revenue

Operating revenue is income from your main business activities - the money you earn from what your business was designed to do. This forms the foundation of your financial performance.

Three main types:

• sell products, for example, a bakery selling bread and pastries
• provide services, for example, consulting or repair work
• collect recurring payments, for example, gym memberships or streaming services

Sales revenue is often used as a general term for income from selling goods or services. Use service revenue if you want to track income from services separately.

Non-operating revenue

Non-operating revenue is income generated from activities outside your core operations. The Australian Taxation Office provides official guidance on how to assess profits from isolated transactions, which may be treated as ordinary income or a capital gain. These earnings are often irregular and aren't directly tied to your business’ ongoing performance.

They include:

• interest income – earnings from interest on investments, for example, depositing retained earnings in a bank
• dividend income – income from shares in other companies, for example, investing in tracker funds that pay dividends
• rental income – leasing out property or equipment, for example, renting extra space in a bakery
• gain on sale of assets – income from selling assets, for example, when a bakery sells its old ovens after upgrading
• licensing fees – income from allowing others to use intellectual property, for example, patents or trademarks
• franchise fees – earnings from franchisees operating under your brand, for example, expanding a bakery through franchising
• advertising revenue – income from displaying ads on your website or property

What is revenue recognition?

Revenue recognition determines when you record revenue in your books. Under accrual accounting, you record revenue when it's earned, not when you receive payment.

Example: A bakery delivers bread to a cafe in July but gets paid in August. The revenue is recorded in July (when delivered), not August (when paid).

Why it matters: This ensures your financial statements accurately show business performance for each time period, giving you clearer insights into when your business actually generated income.

You should recognise revenue according to the International Financial Reporting Standards (IFRS). In Australia, the standard AASB 15 applies to accounting periods starting on or after 1 January 2018. Some small businesses, for example, sole traders, may use cash accounting, where you record revenue when you receive payment, not when you earn it.

Learn more about cash and accrual accounting.

Revenue vs profit: Key differences

Revenue vs profit measures different aspects of business performance. Revenue shows money coming in, profit shows money you keep.

Learn more about profit.

Revenue (the "top line"):

• What it is: Total money from sales
• Formula: All sales added together
• Shows: Sales performance and customer demand

Profit (the "bottom line"):

• What it is: Money left after all expenses
• Formula: Revenue minus all costs
• Shows: Financial health and sustainability

High revenue doesn't guarantee success if your expenses are too high.

Why it matters

Understanding the difference between revenue and profit is essential for making smart business decisions. High revenue might look impressive, but it doesn't guarantee success. If your expenses are too high, you could still operate at a loss.

Knowing both metrics helps you:

• Set realistic goals: Base targets on actual profit, not just sales figures.
• Make informed pricing decisions: Ensure your prices cover costs and generate profit.
• Drive long-term success: Focus on sustainable growth, not just boosting revenue.

Revenue vs income: Key differences

Revenue and income are often used interchangeably, but they mean different things.

Income is a broader term. It includes revenue and other earnings, such as government subsidies or one-time financial gains.

Revenue:

• Scope: Limited to income from primary business activities, for example, sales of goods or services
• Focus: Shows core business performance, helping you assess demand and pricing.
• Performance: Reflects sales performance and market demand. Low revenue may mean you need to make changes.

Income:

• Scope: Includes revenue and other earnings, such as investments and subsidies
• Focus: Provides a broader view of financial health beyond daily sales.
• Performance: Shows total financial health. High income means you manage resources well and earn from different sources.

Understanding the difference between revenue and income helps you make better decisions about your business’ finances. While high revenue can indicate strong sales, it's the income that ultimately reflects your overall financial stability. Recognising both metrics gives you a clearer picture of your business’ performance. Here's how understanding both helps:

• Make better financial decisions: Know where your money is coming from and how to optimize your earnings.
• Assess business health: Revenue might be high, but income reveals whether you're truly profitable after all costs.
• Plan for growth: By balancing both revenue and income, you can ensure you're on track for sustainable growth, not just short-term gains.

How to calculate revenue

Follow these steps to calculate and track your revenue:

1. Use the basic revenue formula to calculate

Calculating revenue shows exactly how much money your business generates from sales. Use this basic formula:

Revenue = Units sold × Price per unit

Example: Bakery sells 100 loaves at $5 each = $500 revenue

This calculation works for any business that's selling individual products or services at set prices.

2. Adjust for Different Business Models

Depending on your business type, the method for calculating revenue may differ. Here's how to adjust your calculation:

• service-based businesses – for consultants or freelancers, calculate revenue as hourly rate × number of hours worked. Under Australian tax law, this can be classified as personal services income (PSI) if more than 50% of the payment for a contract is for an individual's skills or labour
• subscription-based businesses – revenue = number of subscribers × subscription price (for example, gyms or streaming services)
• ecommerce businesses – each transaction may have a different price, so track every sale individually

Using ecommerce platforms or accounting software, like Xero will help simplify the process.

3. Calculate net revenue

Net revenue shows your actual earnings after accounting for real-world business adjustments like returns and discounts.

Formula: Net revenue = Gross revenue - Discounts - Returns - Allowances

Why it matters: Net revenue gives you a realistic picture of money you'll actually keep, helping you make better financial decisions and set accurate targets.

4. Track your revenue

To maintain accurate financial records and make better decisions, it's essential to track your revenue consistently. Follow these steps to track your revenue effectively:

1. Choose a Method:
2. Record Transactions:

Best practices for effective revenue tracking

Accurate revenue tracking prevents costly mistakes and gives you reliable data for business decisions. Poor tracking leads to cash flow problems, bad decisions, and tax issues.

Essential practices:

• update your records daily to avoid errors
• reconcile revenue records with bank statements each month
• keep receipts and supporting documents for tax compliance
• use automation to reduce human error with accounting software

Categorise your revenue

Break down revenue by product lines, sales channels (online or in-store), and customer segments. This helps you see where your revenue comes from and make better decisions.

Review data regularly

Review your revenue data each month to spot trends and find areas to improve.

Unlock your business potential with Xero

Tracking your revenue helps you understand where your money comes from, plan for your business’ future, and make better decisions.

Xero simplifies revenue management with automated monitoring, real-time insights, and streamlined accounting – all in one platform.

FAQs on revenue

Below are answers to some common questions about revenue.

What's the difference between gross and net revenue?

Gross revenue is the total income from all sales before any deductions. Net revenue gives you a more realistic picture of your income by subtracting returns, allowances, and discounts from your gross revenue. Think of it as the money you actually get to keep from your sales.

Can a business have high revenue but still be unprofitable?

Yes. High revenue shows strong sales, but it doesn't account for expenses like rent, salaries, and marketing. If your costs are higher than your revenue, your business won't be profitable. That's why you need to track both revenue and profit to understand your financial health.

How often should I track my business revenue?

It's good to track your revenue regularly. Daily or weekly tracking helps you stay on top of sales and spot trends quickly. At a minimum, review your revenue monthly to make decisions about your budget, inventory, and business strategy.