What is revenue? Definition, formula and real examples

Published Wednesday 18 February 2026

Table of contents

• What is revenue?
• Types of business revenue
• How to calculate revenue
• Revenue vs profit: Key differences
• Why tracking revenue is important for your small business
• Best practices for effective revenue tracking
• Manage your revenue with confidence
• FAQs on revenue

Key takeaways

• Calculate your revenue using the basic formula of units sold multiplied by price per unit, then subtract returns, discounts, and allowances to get net revenue for a more accurate picture of your actual earnings.
• Track both operating revenue from your core business activities and non-operating revenue from secondary sources like interest or rental income to understand all your income streams and make better financial decisions.
• Distinguish between revenue and profit by remembering that revenue shows total money coming in before expenses, while profit reveals what you keep after all costs are deducted.
• Implement consistent revenue tracking using accounting software or point-of-sale systems to automate data collection, reduce errors, and gain real-time insights for better business planning and growth opportunities.

What is revenue?

Revenue is the total money your business earns from selling products or services before any expenses are deducted. It's also called sales or turnover.

A bakery's revenue comes from selling bread. A freelancer earns revenue by providing services. Revenue is the starting point for calculating profit.

Types of business revenue

Businesses generate revenue through two main categories: operating revenue (income from core business activities) and non-operating revenue (income from secondary sources).

Operating revenue

Operating revenue is income from your primary business activities. It forms the foundation of your financial performance and is sometimes called gross revenue.

Examples include:

• Sales revenue: Income from selling goods, like a bakery selling bread and pastries
• Service revenue: Income from providing services, such as consulting or repair work
• Subscription revenue: Recurring income from subscription models, such as gym memberships or streaming services

Tip: Sales revenue is often used as a catch-all term for income from selling goods or services. Service revenue is used when you want to track income from services separately, particularly if you offer both goods and services.

Non-operating revenue

Non-operating revenue is income from activities outside your core operations. These earnings are often irregular and not directly tied to ongoing performance.

Examples include:

• Interest income: Earnings from investments, such as bank deposits
• Dividend income: Returns from shares in other companies
• Rental income: Leasing out property or equipment
• Gain on sale of assets: Proceeds from selling equipment or property
• Licensing fees: Payments for use of your intellectual property
• Franchise fees: Income from franchisees operating under your brand
• Advertising revenue: Income from displaying ads on your platforms

How to calculate revenue

Follow these steps to calculate your business revenue accurately.

1. Use the basic revenue formula

Revenue = Units sold × Price per unit

The formula has two components:

• Units sold: The quantity of products sold or services delivered
• Price per unit: The amount charged for each product or service

For example, if a bakery sells 100 loaves at $5 each: 100 × $5 = $500 in revenue.

2. Adjust for different business models

Revenue calculations vary by business type:

• Service-based: Revenue = Hourly rate × Hours worked
• Subscription-based: Revenue = Number of subscribers × Subscription price
• Ecommerce: Track each transaction individually, as prices may vary

Accounting software like Xero simplifies tracking across all business models.

3. Calculate net revenue

Net revenue is your earnings after subtracting returns, discounts, and allowances.

Net revenue = Gross revenue - Discounts - Returns

This formula gives a more accurate picture of your actual income.

4. Track your revenue

Consistent tracking maintains accurate records and supports better decisions.

Choose a tracking method:

• Use spreadsheets: Best for very small businesses, but prone to errors
• Use point of sale (POS) systems: Ideal for physical stores with automatic data integration
• Use accounting software: Best for automation and advanced reporting

Record transactions consistently:

• Log every sale correctly and promptly
• Automate where possible to reduce errors and save time

Revenue vs profit: Key differences

Revenue shows how much money comes in. Profit reveals how much you keep after expenses. Both metrics measure different aspects of business performance.

Revenue:

• Calculate: Total sales
• Focus on: Income generated before expenses
• Position: Top of income statement (the "top line")
• Indicates: Sales performance and market demand

Profit:

• Calculate: Revenue minus all costs
• Focus on: Income remaining after expenses
• Position: Bottom of income statement (the "bottom line")
• Indicates: Financial health and sustainability

Learn more about profit and how to calculate profit.

Why it matters

Understanding both metrics is essential for smart business decisions. Success requires balancing revenue with manageable expenses.

Knowing both helps you:

• Set realistic goals: Base targets on profit, not just sales figures
• Price effectively: Ensure prices cover costs and generate profit
• Plan for sustainability: Focus on long-term growth, not just revenue increases

Why tracking revenue is important for your small business

When you track revenue, you reveal how much money flows into your business before expenses. This data helps you measure growth, forecast earnings, and make smarter financial decisions.

Drive business growth

Steady revenue growth supports long-term sustainability. It provides resources to reinvest in opportunities, expand operations, and attract investors.

For example, a bakery with consistent revenue might use surplus funds to open a second location, upgrade equipment, or add new product lines.

Measure performance

When you track revenue, you can monitor progress toward financial goals. Ask yourself:

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

You can also benchmark against the market to gain valuable insights. Explore Xero's Small Business Insights (XSBI) to learn more.

Gain insights and identify trends

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

• Are sales increasing or decreasing?
• Which products perform best?
• Are seasonal factors affecting revenue?

Make informed business decisions

When you decide based on data, you achieve better business outcomes. Revenue tracking helps you determine:

• Should you adjust your pricing strategy?
• Should you invest in new equipment?
• Should you expand into new markets?

Revenue doesn't equal profitability. Learn more about increasing revenue.

Best practices for effective revenue tracking

Accurate data input ensures reliable financial statements. When tracking is inaccurate, you face poor decisions, cash flow problems, and tax compliance issues. For example, the Government of Canada notes that failing to report all income can result in a penalty of 10% of the unreported amount.

Follow these best practices to ensure accuracy.

Maintain accurate records

Keep your records current and organized:

• Update daily: Stay on top of transactions
• Reconcile monthly: Review revenue with bank statements to spot discrepancies
• Keep supporting documents: Maintain receipts for tax and auditing purposes, as official audits often find a lack of documented evidence for key financial controls

Categorize your revenue

Break down revenue to understand your income sources:

• Analyze product lines: Identify which products generate the most income
• Compare sales channels: Measure online versus in-store performance
• Review customer segments: Determine which customer groups drive revenue

This breakdown reveals where your money comes from and supports better decisions.

Use tools for automation

Accounting software streamlines tracking and reduces human error, which is critical since manual processes can be deficient in design and fail to meet best practices. Automated systems:

• Save time on manual data entry
• Reduce calculation mistakes
• Provide real-time financial insights

Review data regularly

Set aside time each month to:

• Compare revenue against targets and previous periods
• Spot trends in product or service performance
• Identify areas for improvement or growth opportunities

Manage your revenue with confidence

When you understand revenue, you can run a successful business. From calculating your earnings to tracking trends, revenue data guides your strategy and decisions.

Simplify your revenue management with automated tracking, real-time insights, and streamlined accounting in one platform.

Get one month free and see how easy it is to manage revenue.

FAQs on revenue

Here are answers to common questions about revenue.

What is a simple definition of revenue?

Revenue is the money your business earns from sales before any costs are subtracted.

What does revenue tell you about your business?

Revenue shows your earning power and market demand. Tracking revenue over time reveals growth trends, seasonal patterns, and which products or services perform best.

How is revenue different from sales?

Revenue and sales are often used interchangeably. Revenue is the broader term for all business income, while sales typically refers specifically to income from selling goods and services.

Can a business have revenue but no profit?

Yes. Revenue is total income before expenses, while profit is what remains after costs are deducted. A business can generate substantial revenue but still operate at a loss if expenses exceed income.

What's the difference between gross revenue and net revenue?

Gross revenue is total income before any deductions. Net revenue is income after subtracting returns, discounts, and allowances, giving a more accurate picture of actual earnings.