The 4 Basic Aspects of Business Revenue
The word “Finances” is often translated in business speak as numbers to be added up, receipts to be tracked, taxes to be filed, and so on.
In reality, revenue is the backbone of any business. Any organization offering, and selling, something (i.e. product or service) for a fee has revenue.
To improve your business’ chance of success, and to better provide your offering(s) to your target markets and buyers, understanding revenue is important. This article is the beginning of a series of resources, all covering certain aspects of revenue, in a company.
Let’s begin with a simple definition.
According to Investopedia, revenue is “the money generated from normal business operations, calculated as the average sales price times the number of units sold. It is the top line (or gross income) figure from which costs are subtracted to determine net income.”
Now, it’s time to grab a cup of coffee and read all about the topline number of your business.
4 Basic Aspects of Revenue
Put simply, revenue growth is one period of total sales compared to a similar time period. If sales were more, it was positive growth. Fewer sales and a lower dollar amount is negative growth.
Here’s an example:
- Company A total revenue Q1: $500,000
- Company A total revenue Q2: $550,000
In the oversimplified numbers, we easily see a 10% revenue growth between Q1 and Q2. Of course, revenue growth is often tracked quarterly and annually, but it’s also beneficial, for some models, to track same time periods (such as Q1 of 2019 vs Q1 of 2020).
Another way of saying “revenue concentrations” is to ask “where does the money come from?”
There are four main streams of revenue:
- Customers: Those who purchase your products and/or services.
- Markets: Particular demographics (age, gender, location) and industries (manufacturers, medical businesses, and so on).
- Products: Each item or good you sell creates a stream of revenue into your business.
- Services: Similar to products, each service generates unique revenue.
Average Order Value
This revenue term is fairly straightforward. If you’re a B2C ecommerce, this number is likely relatively low ($24 per order, for example). A company providing high-value products and services may be higher ($10,000/mo for an ad agency, for instance).
Find your average order value by taking your total revenue for a given period and dividing the number of orders/transactions.
- Example: $500,000 in revenue for Q1 with 2500 transactions = $200 average order
Average Revenue Per Customer
While average order value and revenue per customer are similar metrics, there is a bit of difference. Some customers are repeat buyers, while others are one-time purchasers.
Our above example included 2500 transactions. If you were to take that figure and compare with the number of individual customers, for the same period — the number you see is likely different.
- Example: $500,000 in Q1 revenue with 1800 unique customers (and 2500 transactions) = $278 in average revenue per customer (rounded up).
Ready to Track Your Performance?
Business finances need to be monitored and maintained. And not just for taxes and regulatory reasons, but because they are the foundation of any business.
A sound business growth strategy consists of tracking revenue, improving your cash flows, and evaluating performance. Let U-Nique’s help you track your key metrics. Reach out to us today to find out how we can help you set up, track, and report on the right metrics that will grow your business.