Differences Between Revenue and Sales
Although revenue and sales are considered one and the same in many cases. There is still a slight difference between revenue vs sales.
Revenue is the total amount of money generated by a company. Sales are the total consideration accrued from selling goods or services by a company.
Sales are a subset of revenue. And sometimes, revenue can also be lower than the sales.
Let’s take one example for each (sales > revenue and revenue > sales) to illustrate revenue and sales.
Revenue vs Sales Example #1 (Revenue is greater than Sales)
Sales can be said as the price paid by the customers for the company’s goods or services.
It is common practice that large companies don’t fully depend on sales for its revenue but also have other kinds of income like investments, service, interest, royalties, fees, and donations to name a few.
- Investments – Investments in government bonds, equity shares etc.
- Service income – Revenues for installation or services
- Charges and Interest – Late payment of money by customers
- Royalties/Licensing – fees for use of rights or the name of your business
- Fees – professional services that charge for copies made, travel and mileage reimbursements.
If the total sales of Sweet Umbrella Inc. are $200 billion and the incomes generated by other means are $4 billion, then the total revenue generated by Sweet Umbrella Inc. is $204 billion.
This clearly shows that revenue will be more than the sales in this case.
Revenue vs Sales Example #2 (Sales is greater than Revenue)
Think about the first item of the income statement of the company. It is gross sales. Why do we call it gross sales? It’s because it’s a figure that includes the sales returns/sales discounts (if any). When we deduct the sales returns/sales discount from the gross sales, we get the revenue (net sales).
In this case, sales are more than revenue.
For example, if the total sales of Greenery Company are $20,000, the cost incurred due to replacement is $400 and the cost incurred due to other discounts and deductions be $1600. Then the total revenue generated by Greenery Company is $18,000.
The above example clearly shows that sales are more than revenue in the above case.
Revenue vs Sales Infographics
Here is the list of top 4 differences between Revenue vs Sales.
Revenue vs Sales Key Differences
Here are the key differences between revenue and sales –
- Both revenue and sales are used as one and the same but when it is seen in accounting terms, both can be easily differentiated.
- Revenue can be calculated by adding sales with other incomes generated by the company whereas sales can be calculated by multiplying the total goods/services sold with its price.
- Revenue can exist without sales, but sales automatically turn into revenues. As for example, we can talk about a new company that may have a small revenue by renting its own working space to other new businesses, but until it has sold a unit of product, it didn’t generate any sales.
- Revenue shows a company’s resourcefulness in generating money whereas sales show a company’s ability to sell its products/services.
Revenue vs Sales – Head to Head
Here are the main differences between revenue vs sales –
|Basis of comparison between Revenue vs Sales||Revenue||Sales|
|Meaning||Total amount of money generated by the company||Income generated by selling of company’s goods or services|
|Calculation||Revenue is calculated by adding sales with other income||Sales can be calculated by multiplying the total goods/services sold with its price|
|Example||If sales of XYZ is $20,000, and income from other sources is $5,000, then revenue would be $25,000||If products sold by XYZ are 2,000, and price per product is $10 per product, then sales would be $2000.|
|Indicates||the company’s ability to invest and allocate its resources to maximize the earning potential||Indicates company’s capability of selling its primary goods/services to make a profit|
Revenue vs Sales – Final Thoughts
As we can see sales and revenue aren’t same even if we use them interchangeably.
When a company just starts out, it has almost no existence in the market. That’s why to stay afloat, it may involve in generating money from here and there so that it can produce products/create services and sell them. That’s why clearly, sales often come when the company has the money to manufacture product/ buy product at a cheaper price.
Revenue, on the other hand, is a culmination of all sources of income (investments, consulting, interest received, fees charged etc.) and the amount collected because of sales.
Since sales are a major chunk of an organization’s revenue, we use sales and revenue as synonyms. To understand the sales and revenue, an investor/layman needs to understand how the income statement is formatted and arranged. If an individual learns to read the income statement, she will clearly see the difference between the revenue and the sales.
This has a been a guide to the top differences between Revenue vs Sales. Here we also discuss the Revenue and Sales differences with examples, infographics, and comparison table. You may also have a look at the following articles for gaining further knowledge in Basic Accounting –
- Capital Reserve Examples
- Accrued Revenue in Balance Sheet
- LTM Revenues
- What is Revenue Reserve?
- Asset to Sales Ratio Formula
- Revenue Reserve vs Capital Reserve