What are revenues?

Revenues are inflows earned from your customers.

The key factor to understanding revenues is understanding that you must earn them.  To earn a revenue, you must provide whatever service or product it is that you provide to your customers.  For example, if you sell yoga equipment through an e-commerce site, then you will earn revenues as you ship the goods to your customers.  You do not necessarily earn revenues when you buy products that you plan to resell, or when you collect payments from customers.  You do not even necessarily earn revenues when a customer sends you a big profitable order.  Rather, revenues can only be recorded when earned.

Another key aspect of revenues is that they are inflows.  Therefore, you cannot earn a revenue for something for which you don’t expect to get paid.  If you give free merchandise to customers, or donate products for charity, you haven’t earned revenues.

To run a successful business, focus on your revenues.  What does your business do to earn revenues, and how can you earn more of them?  It’s easy to get distracted by other issues, such as social marketing, distribution, or managing your cash flow.  However, remember that the very process of earning revenues is key to building a vigorous and healthy business.

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

7 Responses to “What are revenues?”

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  1. Accrual accounting explained « Accountinator - February 1, 2012

    […] Revenues are earned when the seller provides the service, or delivers whatever products that it is supposed to provide in exchange for the revenues.  For example, a Department Store earns revenue from a sweater when it actually gives the sweater to the customer.  It does not matter if the customer pays for the sweater in advance (lay-away) or a month later (credit card sales). […]

  2. Contribution margin – a better way to measure profits « Accountinator - February 22, 2012

    […] you to set a price of $120.  Then, if you seat 35 passengers at $120, you will receive $4,200 in revenue.  Total profit will equal $1,200 ($4,200 – […]

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    […] Revenues – expenses = net income […]

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    […] metrics will be feedback, rather than predictive. In other words, accounting measures (such as sales or net income) indicate your performance in the past rather than future […]

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