All companies that operate on profit maintain income statements that record financial information. The income statement shows the total income the company receives from the sales of goods/services, the expenses that are incurred during the period of financial reporting, and the profit that is made for that period. The two figures sales and revenue are both present in a company’s income statement. These terms are usually confused to be the same thing, and their subtle differences make them even harder to differentiate. The following article provides a clear overview of both, with explanations on how each is calculated.
Sales
Sales refer to the total value of goods and services sold by a business. A company that sells units of items will calculate its sales by taking the total number of units sold multiplied by the selling price of the product. A service firm, on the other hand, will calculate revenue by either taking into account the number of hours/number of projects/number of policies sold, etc.
The sales for a service provider firm will be harder to value since the value of the service provided may vary, whereas the sales for an organization that sells products are easier to value since sales is then the total selling price of the units of goods sold. In this context, a total sales figure will not take into account any discounts given on sales or the value of returned goods.
For example, if a company that sells laptops sells 10 laptops at $800, the sales value will be $8000. Even if, one of those laptops were returned, the total sales will remain 8000, but the net sales figure, which is derived after any returns or discounts are deducted from the total sales, will represent the true value of the company’s sales. So in this case, net sales would be [total sales ($8000) – returns ($800) = Net sales ($7200)].
Revenue
Revenue, on the other hand, refers to the total income that a firm receives including its sales income. A business may have many other forms of income besides the sales revenue that it receives. For example, some firms make other investments from the funds that they have like investing them in stocks, bonds and other investment vehicles. Companies also receive licensing income and interest income from debts. However, it must be noted that it is possible for a firm to have equal sales and revenues. This will occur when the firm in question does not have other forms of income besides its sales income. Just as net income, net revenue refers to revenue that’s left over once any discounts/returns/deductions are made.
Sales vs Revenue
Sales and revenue are very similar to each other in that both refer to income that is received by a firm. Sales revenue is a part of a company’s total revenue and increasing a company’s revenue, sales, and other is the priority of any business operating on profit. For the healthy operation and survival of any business, it is important to closely monitor both revenue and sales. A company will always strive to increase their total revenue and minimize their expenditure so that they can enjoy higher levels of profitability. For businesses focused mainly on selling their goods and services, keeping close track of the sales revenue will be essential to ensure continued profitability and growth.
Summary:
Difference Between Sales and Revenue
• Sales and revenue are very similar to each other in that both refer to income that is received by a firm.
• The sales for a service provider firm will be harder to value since the value of the service provided may vary, whereas the sales for an organization that sells products are easier to value since sales is the total selling price of the units of goods sold.
• Revenue, on the other hand, refers to the total income that a firm receives including its sales income.