Sales are the lifeblood of a company, as it’s what allows the company to pay its employees, purchase inventory, pay suppliers, invest in research and development, build new property, plant, and equipment (PP&E), and be self-sustaining.
If a company doesn’t have sufficient revenue to cover the above items, it will need to use an existing cash balance on its balance sheet. The cash can come from financing, meaning that the company borrowed the money (in the case of debt), or raised it (in the case of equity).
In order to perform a comprehensive analysis of a business, it’s important to know how the three financial statements are linked and see how a company either uses its sales to fund the business or must turn to financing alternatives to fund the business.
When goods or services are sold on credit, they are recorded as revenue, but since cash payment is not received yet, the value is also recorded on the balance sheet as accounts receivable.
When cash payment is finally received later, there is no additional income recorded, but the cash balance goes up, and accounts receivable goes down.
Revenue in Different Sectors
Below, we will explore what the concept of revenue means in different sectors. As you will see, it can be composed of many different things and varies widely in terms of what the most common examples are, by sector.
Personal finance:
- Salaries
- Bonuses
- Hourly wages
- Dividends
- Interest
- Rental income
Public finance:
- Income tax
- Corporate tax
- Sales tax
- Duties and tariffs
Corporate finance:
- Sale of goods
- Sales of services
- Dividends
- Interest
Non-profits:
- Membership Dues
- Fundraising
- Sponsorships
- Product/service sales
The three main areas that typically make up the finance industry are public finance, personal finance, and corporate finance. As we demonstrated above, the various sources of income in each type can be quite different. While the above lists are not exhaustive, they do provide a general sense of the most common types of income you’ll encounter.
What is a revenue stream?
Before we define a revenue stream, it’s important to understand revenue first.
Revenue is the amount of money generated from the sale of products or services.
While this is commonly associated with businesses, it also applies to freelancers, gig workers, and people with one or more side hustles earning extra income.
Revenue streams are the various income sources that channel this money into a business or bank account.
Take Apple, for example. It’s a huge brand best known for its iPhones and Mac computers, but selling physical products isn’t the only way Apple makes money. Digital services such as iCloud storage, music or app subscriptions, and warranties are all separate revenue streams that make up approximately 17.7% of the company’s total revenue.
This revenue stream principle can be scaled up or down to fit any business size. Just like diversifying your investment portfolio, it’s important to diversify your revenue streams, no matter what kind of work you do.
Why?
Consider this: if your primary source of revenue starts to dry up, you’ll have other streams to minimize the impact. It’s easier to build up those other streams with the right foundation in place rather than starting from scratch if your primary stream starts hemorrhaging money.
4 types of revenue stream models to earn money
Revenue streams can be organized into four basic categories, depending on the type of payment and the products or services provided.
1. Transaction
This is the most common stream of revenue for a business. In most cases, these transactions occur when a customer pays for a good or service. That person doesn’t have to pay any more money until it’s time to buy another product.
2. Project
A project revenue stream is similar to transaction-based revenue in that it’s a non-recurring payment at one point in time. However, this form of revenue is usually broken up into several large payments throughout the duration of a project, which may take a substantial amount of time, money, and resources to complete.
3. Service
A service revenue stream is usually based on time instead of a physical product. For example, when you hire a lawyer, they charge an hourly rate for their services.
4. Recurring
A recurring revenue stream, as the name suggests, means that payments will be ongoing. Examples of recurring revenue include:
- Subscription fees
- Advertising fees
- Usage fees
- Brokerage fees
- Third-party licensing
- Renting, leasing, or lending assets.
2nd day
A PivotTable is a powerful tool to calculate, summarize, and analyze data that lets you see comparisons, patterns, and trends in your data. PivotTables work a little bit differently depending on what platform you are using to run Excel.
https://support.microsoft.com/en-us/office/create-a-pivottable-to-analyze-worksheet-data-a9a84538-bfe9-40a9-a8e9-f99134456576
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