What is revenue? Definition, calculation and why it matters

Published Wednesday 7 January 2026

Table of contents

• What is revenue?
• How to calculate revenue
• Revenue vs profit: key differences
• Types of business revenue
• Why tracking revenue is important for your small business
• Revenue vs income: key differences
• Why it matters
• Revenue recognition basics
• Best practices for effective revenue tracking
• Simplify revenue management with Xero
• FAQs on revenue

Key takeaways

• Calculate revenue using the basic formula of units sold multiplied by price per unit, then adjust for your specific business model whether service-based, subscription-based, or ecommerce to get accurate income measurements.
• Track both gross revenue and net revenue by deducting returns, discounts, and allowances from your total sales to understand your true earnings and make informed business decisions.
• Distinguish between revenue and profit since revenue shows total money coming in while profit reveals what remains after expenses, helping you set realistic goals and focus on sustainable growth rather than just sales figures.
• Implement regular revenue tracking using accounting software to identify seasonal patterns, measure performance against goals, and make data-driven decisions about pricing, investments, and market expansion.

What is revenue?

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

For example, a bakery's revenue comes from selling bread, while a freelancer earns revenue by providing services. Revenue forms the starting point for calculating profit.

How to calculate revenue

Here are steps on how to calculate and track revenue:

Basic revenue formula

The first step in understanding your business's income is calculating your revenue. Basic revenue formula:

Revenue = Units sold × Price per unit

Example: A bakery sells 100 loaves at £5 each.

• Calculation: 100 × £5 = £500
• Result: £500 in revenue

Adjust for different business models

Revenue calculations change according to business type:

Service-based businesses:

• Formula: Hourly rate × Hours worked
• Example: Consultants, freelancers, agencies

Subscription-based businesses:

• Formula: Number of subscribers × Subscription price
• Example: Gyms, streaming services, software

Ecommerce businesses:

• Method: Track each transaction individually
• Reason: Each sale may have different pricing

Use ecommerce platforms or Xero accounting software to simplify the process.

Calculate net revenue

Net revenue shows your actual earnings after deducting returns, discounts, and allowances.

Formula: Net revenue = (Units sold × Price per unit) - Discounts - Returns

This calculation gives you a clearer picture of your true income by accounting for all revenue adjustments.

Revenue vs profit: key differences

Revenue and profit measure different aspects of business performance. Revenue shows total money coming in, while profit shows what you keep after all expenses.

Learn more about profit.

There are several key differences between revenue and profit.

Revenue characteristics:

• Calculation: Total sales from products or services
• Purpose: Shows total income generated
• Location: Top of income statement (called "top line")
• Significance: Demonstrates sales performance and market demand

Profit characteristics:

• Calculation: Revenue minus all costs and expenses
• Purpose: Shows actual money retained
• Location: Bottom of income statement (called "bottom line")
• Significance: Reveals business financial health and sustainability

Learn more about calculating profit.

Why it matters

Understanding revenue vs profit is essential for smart business decisions. High revenue looks impressive but doesn't guarantee success.

To make a profit, your revenue needs to be higher than your expenses, even when sales look strong.

Knowing both metrics helps you:

• set realistic goals based on actual profit, not just sales figures
• make informed pricing decisions so your prices cover costs and generate profit
• focus on sustainable growth, not just boosting 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 the core income from your primary business activities. It's often called gross revenue.

This metric forms the foundation of your business's financial performance and is one of the most important numbers to track.

Examples include:

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

Sales revenue is often used as a catch-all term for your main income-generating activities, whether you sell goods or provide services. Use service revenue when you want to track income from services separately, especially if you offer both goods and services.

Non-operating revenue

Non-operating revenue is income from activities outside your core business operations. These earnings are typically irregular and don't reflect your main business performance.

They include earnings such as:

• Interest income: Earnings from interest on investments, like 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, such as renting extra space in a bakery.
• Gain on sale of assets: Income from selling assets like old equipment, like when a bakery sells its old ovens after upgrading.
• Licensing fees: Income from allowing others to use intellectual property, like patents or trademarks.
• Franchise fees: Earnings from franchisees operating under your brand, e.g., expanding a bakery through franchising.
• Advertising revenue: Income from displaying ads on your website or property.

Why tracking revenue is important for your small business

Revenue tracking shows you exactly how much money flows into your business before expenses. This data helps you:

• Identify trends: Spot seasonal patterns and growth opportunities
• Make strategic decisions: Base choices on actual performance data
• Plan for growth: Forecast earnings and set realistic targets
• Measure performance: Track progress toward financial goals

Drive business growth

Steady revenue growth supports long-term sustainability by giving you resources to reinvest in opportunities, scale your operations and attract investors.

For example, a bakery with steady revenue growth might:

• Expand operations: Open a second location
• Upgrade equipment: Invest in better ovens or display cases
• Diversify offerings: Add new product lines like pastries or coffee

Measure performance

Tracking revenue regularly helps you:

• check whether you are meeting your revenue goals
• spot where you can boost performance
• see which products or services generate the most revenue

Benchmarking against the market can also give you useful context. Explore Xero Small Business Insights (XSBI) to learn more.

Gain insights and identify trends

Revenue patterns reveal insights that drive smarter business decisions:

• Sales trends: Track whether revenue is increasing or decreasing over time
• Product performance: Identify your best-selling products or services
• Seasonal impact: Spot recurring patterns that affect your earnings

Make informed business decisions

Data-driven decisions using revenue insights help you determine:

• Pricing strategy: Should you adjust your current prices?
• Equipment investment: Is it time to upgrade your tools or technology?
• Market expansion: Are you ready to enter new markets or locations?

Revenue is different from profitability. Learn more about increasing revenue.

Revenue vs income: key differences

Although often used interchangeably, there are several subtle yet significant differences between revenue and income.

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

Revenue:

• Scope: Limited to income from primary business activities, like 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 signal a need for strategic changes.

Income:

• Scope: Includes revenue plus 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 indicates efficient resource management and extra earnings from various sources.

Why it matters

Understanding the difference between revenue and income is key to making informed decisions about your business's finances. While high revenue can indicate strong sales, it's the income that ultimately reflects your overall financial stability.

Recognizing both metrics ensures you have a clearer picture of your business's performance. Understanding both helps you:

• make better financial decisions by knowing where your money comes from and how to grow your earnings
• assess business health by seeing whether you are profitable after all costs
• plan for sustainable growth, not just short-term gains

Revenue recognition basics

Revenue recognition determines when you record revenue in your accounts, a process guided by a principles-based five-step model under international standards. Under accrual accounting, you record revenue when you earn it, not when you receive payment.

For example, if a web designer completes a project in May but the client pays the invoice in June, the revenue is recorded in May. This gives a more accurate picture of your business's performance for that period.

Some small businesses use cash accounting and record revenue only when they receive the money.

Best practices for effective revenue tracking

Your financial statements are only as reliable as the data you enter. Accurate revenue tracking supports better decisions, healthy cash flow and smooth tax reporting, especially with new accounting standards becoming effective for accounting periods beginning on or after 1 January 2026. To stay on top of these changes, follow these best practices.

Maintain accurate records

• Daily: Update your records to stay on top of transactions.
• Monthly: Reconcile revenue with bank statements to spot discrepancies early.
• Always: Keep receipts and other supporting documents for tax and auditing purposes.

Categorise your revenue

Break down revenue by product lines, sales channels (online, in-store), and customer segments. This helps you understand where your revenue is coming from and enables more effective decision-making.

Use tools for automation

Invest in accounting software to streamline tracking and reduce human error. This saves time and ensures more accurate financial insights.

Review data regularly

Set aside time each month to review your revenue data, spot trends, and identify areas for improvement.

Simplify revenue management with Xero

When you understand and track revenue, you can see where your money comes from, plan your business future and make confident decisions.

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

Try Xero for free today.

FAQs on revenue

Here are answers to some common questions about business revenue.

What is the simple definition of revenue?

Revenue is the total amount of money a business brings in from selling its goods or services, before any costs or expenses are subtracted. It's often called the 'top line' because it sits at the top of an income statement.

What is revenue in economics?

In economics, revenue refers to the total income a firm receives from selling a certain quantity of a good or service. Economists use it to analyse market demand, the effects of pricing on income, and a firm's production decisions.

Can a business have revenue but no profit?

Yes, definitely. A business generates revenue from sales, but it only makes a profit if that revenue is greater than its total expenses. If costs are higher than revenue, the business will have a loss, even with strong sales.

How often should I track my business revenue?

It's a good idea to track revenue regularly; many businesses do it weekly or monthly. Using accounting software gives you a real-time view, helping you spot trends and make decisions without waiting for the end of the month.

What's the difference between gross and net revenue?

Gross revenue is the total income from all sales. Net revenue is what's left after you subtract returns, allowances for damaged goods, and discounts from your gross revenue. It provides a more accurate picture of your actual earnings.