Business Revenue: The Basics

Revenue is a vital part of your business. Your business needs revenue to survive. So, you must understand revenue.

Below you will learn what revenue is, why revenue is important, how to calculate it, and how to increase it.

What is revenue in business?

Revenue is the money your business receives during a certain accounting period.

Revenue is also called the top line because it is the first item listed on your small business income statement. You subtract business expenses from revenue to get your company’s bottom line.

You will determine your revenue differently depending on whether you use accrual or cash accounting. In accrual accounting, you include sales made on credit as revenue, as long as you have given the goods or services to the customer. In the cash method of accounting, you only include sales as revenue if the customer has paid you.

The two types of revenue

There are two types of revenue: operating and nonoperating revenue.

Operating revenue is revenue your company earns from its main business activities. For example, sales to customers are operating revenue.

Nonoperating revenue is revenue your company earns from activities that aren’t directly related to your business. For example, you might earn nonoperating revenue from investing or renting your building to another business.

Why is revenue important?

Revenue is what keeps your business alive. Beyond being a lifeline, revenue can give you key insights into your business.

If you want to increase your business profits, you need to increase your revenue. By keeping an eye on your revenue and focusing on increasing it, you can also increase your profits.

By tracking your revenue across consistent accounting periods, you can compare it over time. For example, you can compare your business revenue between years or quarters.

You will also use your revenue for tax reporting. You will subtract your expenses from your revenue to determine your business’s taxable profits.

Revenue formula

To calculate revenue, you need to know a few numbers.

First, calculate your operating revenue. Multiply the number of goods or services sold by the price you sold them for. For example, if you sell 300 pairs of shoes at $80, your operating revenue would be $24,000 (300 x $80). Do this for all the products or services you have sold. Add together all your operating revenue.

Next, calculate your nonoperating revenue. Simply add together all your earnings from non-business activities.

Finally, add together your operating revenue and non-operating revenue.

Total revenue = operating revenue + nonoperating revenue

How to increase revenue

You can take steps to increase your business’s revenue. For example, you can increase prices, work to drive repeat sales, and add new products or services.

Want to learn how to increase revenue? Here are a few ways to get started:

1. Drive repeat business
2. Add products or services
3. Bundle products or services
4. Upsell or cross-sell
5. Add new payment options
6. Reduce shipping costs
7. Adjust your budget

1. Drive repeat business

Have you ever wondered how to increase revenue from existing customers? Business owners depend on repeat customers to keep sales steady.  

You can keep customers coming back by:

• Letting them know about new products and offers through email and SMS campaigns
• Creating a customer loyalty program
• Personalizing your customer service (e.g., customer-specific email campaigns based on previous buying patterns)
• Giving them a chance to offer feedback (and listening to it!)
• Staying in touch directly through social media

Some customers come through your business or visit your website and seem to disappear. How can you turn one-time customers into brand loyalists? Keep customers coming back through special offers and tailored email campaigns.

2. Add products or services

You know which products sell best and which ones are struggling. Adding products is a great way to increase revenue.

Think about adding products adjacent to what you already sell. No matter what you sell, stay on brand and don’t stray too far away from what you know already works. 

Let’s say that you sell books online. You could add several products that customers would love to buy, such as:

• Branded clothing and accessories
• Stationary
• Bookmarks
• Book lights

Once added, you can promote the new products or services by bundling them with your bestsellers.

4. Upsell or cross-sell

Depending on your business, you can upsell and cross-sell products and services. The process behind both is simple. 

Upselling is when you offer an upgraded or more expensive product to customers. 

Cross-selling is when you offer a related product to what the customer is already interested in. 

You can upsell and cross-sell at your point of sale or in your marketing materials. 

5. Add new payment options

There are plenty of ways customers can spend money with a company. And if a customer has a preferred payment method and you don’t offer it, you can say goodbye to the sale. 

Don’t restrict yourself to cash, checks, and credit or debit cards. Think about offering:

• Mobile pay. Mobile payments let customers use their phones and other devices to make payments. 
• Buy now, pay later. A buy now, pay later (BNPL) is a type of split payment or point-of-sale installment loan. Customers pay for a percentage of the product at the point of sale and make additional payments over time. 
• Automated clearing house. An automated clearing house lets customers input their banking information and withdraw payments automatically from their accounts. ACH payments are a great way to set up recurring payments for customers.  

6. Reduce shipping costs

Did you know that customers abandon almost 70% of online shopping carts? The main culprit? Surprise shipping costs. Here are some ways to prevent shipping sticker shock:

• Offer multiple shipping carriers so customers can shop for the best deal
• Display real-time shipping costs when customers view their cart
• Think about free shipping for all customers or those that are close by

7. Adjust your budget

More often than not, there are costs that you can trim to save money and boost your revenue. 

A new small business budget may be what you need to increase your revenue. Budgets set your spending habits for the year, manage your spending, and can help improve your revenue.

Here’s what you need to do to create a budget:

• Calculate your net income
• Track your spending
• Set realistic goals
• Make a spending plan
• Adjust your spending as needed
• Review your budget regularly

You need a way to record your revenue and generate reports. Check out Patriot’s online accounting software. It’s made for small businesses, so you don’t need to be an accountant to use it. Get your free trial.

This article is updated from its original publication date of April 10, 2018.

This is not intended as legal advice; for more information, please click here.