Q&A - What is revenue?

A business exists to provide products (goods and services). Those products are sold to customers. When a customer buys a product, that transaction becomes a sale for the business. That’s what businesses do – they make sales. The value of sales made is the revenue of the business.

You will come across some different ways of describing sales. Alternative terms for “sales” include:

- Revenue (the official accounting term)
- Income
- Sales turnover
- Takings (often used by retailers)

So we know that sales arise through the trading activities of a business. How are sales measured?

The value of revenue in a given period is a function of the quantity of product sold multiplied by the price that customers paid. Total revenue can be calculated by this formula:

Total revenue = volume sold x average selling price

A business that wants to increase revenue needs to either:

(a) Increase the amount or volume sold (higher quantity),

(b) Achieve a higher selling price,

Or (ideally) both of the above!