Revenue Vs. Sales: What’s The Difference?

Finance and accounting are complex fields with their own terminology and regulations. A business’s sales and revenue fit into this category. You may wonder – aren’t sales how you generate revenue? Or is there more to this?

Revenue is defined by Merriam-Webster as either “the total income produced by a given source” or “the gross income returned by an investment. Sales, on the other hand, is merely defined as: “of, relating to, or used in selling.” As you can see, revenue has a broader definition than sales does.

Let’s go back to the questions above. In both cases, you would be correct. Sales do generate revenue, and there is more to it than that. Actually, sales are a subset of revenue. Sales include all of the goods sold as well as services paid for by consumers. Revenue, however, includes not only that but other sources of income, such as royalties, sales of old assets, and donations.

Key Takeaways:

What Is Revenue?

Revenue is all of the income that a business receives in a given period of time. It’s also called the “top line,” as it appears at the top of a company’s income statement, which means that it doesn’t take into account operating costs or other expenses. Revenue is just the amount of money that a company takes in during a given period.

There are different types of revenue, as it covers all the income that a company received, no matter the source.

• Operating revenue

  Operating revenue is the income generated from the company’s operations. That means that it includes sales and services rendered and all other money brought in through day-to-day operation. This type of revenue is usually fairly regular (though it can vary from year to year) and is expected. Examples of operating revenue include:

  • Service fees. If a business offers services, it can include the money brought in from that. For instance, if a pet store offers dog grooming services, a specific good isn’t being sold, but the service is being rendered for a price. That would count as revenue.

  • Sales. Sales of goods are a part of revenue. Most businesses make the majority of their revenue through selling products.

  • Consultations. In a way, this is another form of service. However, consultations are typically categorized differently. If a business offers consulting services or consultations, such as a legal firm, then it can count the fees for those legal consultations as revenue.

• Non-operating revenue

  Non-operating revenue includes any additional revenue that isn’t part of a business’s normal operations. So, sales, consultations, and service charges aren’t going to be included in this part of revenue calculation. Due to that, non-operating revenue tends to be inconsistent.

  Types of non-operating revenue include:

  • Royalties. In a business like a record company, their operating revenue may include sales of albums, but royalties from music that are under their label wouldn’t be included in that.

  • Investments. If the business owns stock or other types of investments, dividends from that would be included in non-operating revenue.

  • Legal earnings. If they win a lawsuit or receive payment from any other legal proceeding, be it a lump sum or payments, it would be considered part of non-operating income.

  • Sales of assets. Costs recouped from assets that have hit the end of their lifespan or sales of assets in order to have cash on hand would count as non-operating revenue. It’s not a regular infusion of funds, nor is it something done regularly in the day-to-day running of the business.

  • Donations. This would be unusual in most profit-based organizations; however, if it’s a nonprofit, not-for-profit, or an organization like a university, then donations can be a major source of their revenue.

    However, it’s considered irregular income, as the amount of money received can vary greatly, and it isn’t counted as an everyday source of revenue.

While operating revenue and non-operating revenue should be listed separately, some companies will conflate them in order to hide a drop in revenue or to make it look like they brought in more operating revenue than they actually did.

Being able to say that your company experienced “top line growth” (an increase in revenue) is seen as very positive, so many will go out of their way to report that.

What Are Sales?

Sales are a subset of revenue brought in through the sale of goods or services. The revenue generated from sales is going to be counted as part of operating revenue, as it’ll be part of the business’s day-to-day operation.

As with revenue, there are two different categories of sales.

• Gross sales

  Gross sales are the total that you made from sales without taking other factors into consideration. According to Merriam-Webster, the gross in gross sales means “consisting of an overall total exclusive of deductions.” This means that your gross sales don’t take returns, discounts, or inventory loss into account.

  This calculation is a raw number, as it just looks at one aspect of your sales. It’s useful, certainly, in determining a company’s value and worth; however, it doesn’t begin to represent a company’s profits, nor does it consider discounts offered.

  That being said, knowing the amount of your gross sales is important in order to see the health of your business. It allows you to look at the difference between that and net sales – or even your overall profits, which allows you to determine where you need improvement.

  Your gross sales also give you a good idea of how many customers you’re getting in the door, so to speak, and how many of them are purchasing items once they’re there.

• Net sales

  Net sales are the amount of money you make after subtracting other charges from your gross sales. In other words, net sales include returned items, discounts, and allowances. Merriam-Webster defines net as “remaining after the deduction of all charges, outlay, or loss.”

  The calculation of net sales gives you a better idea of how much money you’re actually making from your sales. It can also point up issues you may be having, such as a very high return rate, that affects how much money you end up making.

  For most businesses, the goal is to have as small a gap as possible between your net sales and gross sales. The smaller the number, the more stability it implies.

  A store with a small gap doesn’t have to have to discount its inventory to draw customers and has a low return rate. Investors will see that as a net positive, as will others who examine your accounts.

  That isn’t to say that discounting your stock is a poor choice or something to be avoided. Businesses have to find a balance between offering discounts and low prices to draw customers and be sure to make a profit. Unless you offer tremendously specific goods or services, it’s always a balancing act.

As revenue doesn’t account for operating costs or the other expenses that running a business accrues, only gross sales are included in revenue. The rough equivalent of net sales for revenue would be profit. The profit is the amount that is earned after subtracting operating costs and discounts.

Revenue vs Sales FAQ

1. Is sales the only source of revenue for a company?

   No, sales isn’t the only revenue source for a company. Companies can also earn revenue from non-operating sources, such as legal awards, royalties, donations, and dividends. There are some other ways to garner income, as well, such as sales of assets, such as selling a building that the company owns.

2. Why is it important to distinguish between operating revenue and total revenue?

   It’s important to distinguish between operating revenue and non-operating revenue because non-operating revenue is intermittent.

   That is to say that non-operating revenue can’t be relied upon and may only be a one-time infusion. Operating revenue, on the other hand, actually determines the company’s success. It’s based on sales of goods and services, as well as money made from consultations.

3. Why are some sales not included in operating revenue?

   Only regular revenue sources are considered operating revenue, which would be why some sales would instead be considered non-operating revenue.

   Such sales would include the sale of assets, as this isn’t a regular source of revenue. Assets can’t be sold continuously, or the company wouldn’t have any left. At that point, they’d no longer be assets; they’d just be goods.

Author

Di Doherty

Di has been a writer for more than half her life. Most of her writing so far has been fiction, and she’s gotten short stories published in online magazines Kzine and Silver Blade, as well as a flash fiction piece in the Bookends review. Di graduated from Mary Baldwin College (now University) with a degree in Psychology and Sociology.