Revenue is the lifeblood of any business. It fuels growth, supports profitability, and shapes long-term success. Knowing how to define, calculate, and improve revenue is key to making smart decisions and maintaining financial health. This glossary covers everything you need to know for 2025—from how it is calculated to real-world examples, small business revenue data, and strategies to boost your earning potential.
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Revenue is the total income a company earns from selling its products or services before any expenses are subtracted. It’s the starting point for determining profit, which considers costs.
In accounting, revenue is recorded as a credit because it increases equity in the business. When revenue is earned, it’s credited to the revenue account and typically offset by a debit to cash or accounts receivable.
Revenue is usually divided into two types:
Revenue is a key indicator of your business’s performance. Here’s why it’s such an important metric:
The basic formula for calculating revenue is:
Revenue = Number of Sales × Price per Unit
In accounting, revenue is recorded when it’s earned, not just when payment is received. It can be reported as:
To calculate revenue, multiply the number of goods or services sold by the price per unit. To determine net revenue, subtract any discounts, returns, or refunds from the total.
As of May 2025, U.S. small businesses with one to nine employees earned an average real monthly revenue of approximately $52,370, according to the Intuit QuickBooks Small Business Index. However, revenue levels vary widely by industry and location. Utilities businesses reported much higher averages, while wholesale trade and educational and health services saw notable declines. As for state-by-state comparisons, Indiana had a solid growth rate of 1.02% while Virginia experienced a decline of 3.57%.
These differences show how strongly revenue outcomes depend on the type of business and region. See the interactive Intuit Quickbooks Small Business Index dashboard for most recent data insights.
The following examples show how to calculate revenue step by step in three different scenarios.
Scenario: A clothing boutique sells 500 jackets in a month, each priced at $80.
Step 1: Calculate revenue
500 units × $80 = $40,000 (Gross Revenue)
Step 2: No deductions apply
The boutique had no discounts or returns this month, so net revenue = $40,000. This steady volume and full-price sales indicate a healthy month for the business.
Scenario: A local consulting firm offers strategy sessions at $200 each, but only books 8 sessions in the month.
Step 1: Calculate revenue
8 sessions × $200 = $1,600 (Gross Revenue)
Step 2: No deductions apply
With no discounts or refunds, net revenue is $1,600. The low number points to weak demand and may signal a need for improved marketing or pricing strategy.
Scenario: An online shop sells 300 kitchen appliances at $150 each. However, 10 items were returned, and 40 were sold at a $30 discount.
Step 1: Calculate revenue from full-price sales
250 units × $150 = $37,500
Step 2: Calculate revenue from discounted sales
40 units × $120 = $4,800
Step 3: Subtract returns
10 units × $150 = $1,500
Step 4: Add full-price and discounted revenue
$37,500 + $4,800 = $42,300 (Gross Revenue)
Step 5: Subtract returns to get net revenue
$42,300 − $1,500 = $40,800 (Net Revenue)
This example shows how real-world factors like discounts and returns affect final revenue, even when sales volume is solid.
The terms "revenue” and “income" mean different things. Revenue is the total amount a business earns from sales before subtracting any expenses. Income—often called net income—is what remains after all costs, taxes, and operating expenses have been deducted from that revenue.
Revenue = Total Sales (top line) Income = Revenue - Expenses (bottom line)
Revenue reflects sales performance, while income shows actual profitability.
Revenue is the full amount earned from sales and other income sources. Profit is what’s left after subtracting all business expenses, including operating costs, taxes, and interest.
Revenue = Total Income
Profit = Revenue – Total Expenses
A business can have high revenue but low or even negative profit if its costs are too high.
Net income vs. profit
It is important to note that net income and profit are closely related—and in many cases, they mean the same thing. Net income is the official accounting term for a company’s total earnings after subtracting all expenses, taxes, and costs from revenue. It appears as the bottom line on the income statement.
Profit, on the other hand, is a more general term. It can refer to:
So while net income and net profit are the same, it’s helpful to understand that “profit” on its own could mean something different depending on the context.
Sales is income derived solely from selling goods or services. They are a part of total revenue and represent direct customer transactions. Revenue includes sales plus other income sources like interest, royalties, or gains from asset sales.
Sales = Units Sold × Price per Unit Revenue = Sales + Other Income
Margin shows how much of a business’s revenue becomes profit. Gross margin looks at revenue after subtracting the cost of goods sold (COGS), while net margin accounts for all expenses.
Gross Margin = (Revenue – COGS) ÷ Revenue
Net Margin = Net Income ÷ Revenue
Margins reveal how efficiently a business turns revenue into profit.
Businesses earn revenue through different methods based on their industry, business model, and customer approach. Revenue is generally classified as either operating or non-operating. Below are some of the most common revenue types:
The term “operating revenue” refers to core business activities—what the company primarily does to generate income. The following are types of operating revenue:
Income from selling goods or services that are the main focus of the business.
Earnings from providing services related to the company’s primary operations.
For companies whose main business is leasing property or equipment, rental income is considered operating revenue.
These revenues come from activities that are not part of the company’s primary business operations. Types of non-operating revenue include:
Earnings from investments in other companies’ stocks or shares.
Revenue from interest earned on savings, loans, or other financial assets.
Profits made from selling assets or investments outside the normal course of business.
Income from leasing out assets when rental is incidental to the main business.
The revenue cycle is the full process a business follows to manage its revenue. While the steps may vary by industry, most businesses follow a similar path:
In industries like healthcare, the revenue cycle often includes additional steps like insurance verification, claim processing, and denial management. No matter the industry, managing the revenue cycle effectively helps reduce delays, improve accuracy, and ensure timely payments.
Operating revenue is reported at the top of the income statement, also known as the profit and loss (P&L) statement, because it’s the starting point for calculating net income. It reflects a business's total income from sales or services during a specific period before deducting any expenses.
Non-operating revenue, such as interest income or gains from asset sales, is typically listed further down—below operating income. This enables core business performance to be evaluated separately from one-time or ancillary income sources.
Keeping revenue accurate and well-categorized is critical for meaningful financial analysis.
Accurate revenue calculation is essential for understanding your business’s financial health and staying compliant with accounting standards. Inaccurate revenue reporting can lead to poor decisions, financial loss, legal penalties, and damaged trust. It may disrupt operations, mislead investors, and, in severe cases, threaten a company’s survival.
Here are tips to help ensure your revenue calculations are correct and reliable:
When recording operating revenue, only include income from your primary business activities, whether that’s selling goods or providing services. When calculating operating revenue, exclude non-operating income, such as interest or asset sales.
Record revenue when it’s earned, not just when cash is received. This means recognizing income at the time of delivery or service, even if payment comes later.
Gross revenue reflects total sales before deductions. Net revenue accounts for returns, discounts, and allowances. Be clear about which figure you're reporting.
Subtract product returns and service refunds from your gross revenue to avoid inflating your reported income.
If customers pay in advance (e.g., subscriptions or pre-orders), record it as a liability until the product or service is delivered. Only then should it be recognized as revenue.
Make sure each sale is recorded only once and not duplicated across periods, especially when using multiple systems or platforms.
Compare revenue records with bank statements and accounting software on a consistent basis to catch discrepancies early and maintain clean financials.
Negative revenue is very rare but possible. Usually, negative revenue results from returns, refunds, or discounts exceeding total sales during a reporting period. This can happen due to product recalls, large-scale returns, or accounting adjustments. It’s not typical and often signals a one-time issue or a significant business concern.
Maximizing revenue requires a mix of strategic pricing, smart use of technology, strong marketing, and a focus on customer relationships. Here are proven ways to boost revenue potential:
Use value-based and dynamic pricing to reflect customer demand, perceived value, and market conditions. Regularly review prices to stay competitive and aligned with trends.
Use bundling, upselling, and cross-selling to encourage larger purchases and maximize the value of each transaction.
Use customer relationship management (CRM) systems, all-in-one business solutions, and analytics tools to identify high-value customers, monitor financial performance, and improve overall efficiency.
Invest in service, personalization, and loyalty to boost retention. Collect customer feedback to refine offerings and tailor engagement.
Run targeted campaigns, loyalty programs, and multi-channel promotions. Expand your geographic market reach through e-commerce, delivery, or new locations.
If applicable, offer subscription models to generate consistent, predictable income.
Watch their strategies to find gaps and opportunities.
Set KPIs, review results, and adapt quickly to stay competitive.
Revenue is the foundation of your business’s financial health. By understanding how it’s calculated and what drives it, you can make better decisions that promote growth and profitability. With a clear focus on revenue, you'll be equipped to plan for the future, address challenges, and keep your business on a path for success in 2025 and beyond.
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