Is sales and revenue the same? A guide to the differences

By Indeed Editorial Team

Published 9 June 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A company's revenue tends to account for all the business' generated income, including its sales. Even though some people use the terms 'revenue' and 'sales' interchangeably, there are some crucial differences between them. To begin with, one main difference is that the total revenue is not necessarily accounted for by a company's sales, even though sales is one aspect of it. In this article, we explore the key differences between sales and revenue and look at the different types of each.

Is sales and revenue the same?

Revenue refers to the total income a company can generate through the sale of services and goods that classify as the company's primary roles. When speaking of revenue, many people call it the 'top line' as it sits at the top of the business' income statement. Similarly, a company claiming 'top-line growth' says this when they experience a rise in either revenue, gross sales or both.

Sales are the income a company generates from selling services or goods to its customers. In terms of accounting, sales make up one component of a company's revenue. For this reason, sales are usually called gross sales on an income statement.

What are sales?

You can categorise sales simply as money paid to a company by its clients or customers. They're also at the heart of a business's revenue for an allocated period of time. When thinking logically, revenue has the greater figure. Total revenue for a set period could be less than the total sales. For example, if you have a business selling quality hats, your revenue formula excludes all returns, discounted sales and damaged merchandise. For this reason, the company's gross sales could be higher than the revenue. Types of sales include:

Government sales

Governments use this term to explain the money they take from fees, taxes, publicly operated services and fines. In addition to this, government agencies also sell services or goods, be it from auctions of seized property to drilling permits. The proceeds from these activities are not usually referred to as government sales. Instead, they're referred to as revenue.

Related: Gross pay vs. net pay: definitions and examples

Net sales

Net sale is a phrase used to describe a business's total sales profit once you deduct all operating expenses. This number can be a vital financial tool to measure an organisation's profitability. The reason? It can inform companies how in-demand services and goods are. It's also worth making a note that a company's gross profit margins might only provide and offer insight into how well that business's services or products are doing in terms of profitability. If you want an overall view of how well a business is doing financially, that's where the total revenue comes in.

Example of net sales

Using the example of a parts manufacturing company, determine how you intend to calculate the net sales. The company could minus operating expenses like the materials they use to manufacture parts and product refunds or discounts. If they want to calculate the net sales of their company, they bring together and collate all their expenses and the cost of the products they've sold. After this, they minus this number from their gross sales. They use this formula to do so:

(gross sales) - (expenses) = (net sales)

Gross sales

Gross sales refer to a company's total income from its product or service sales, subtracting the costs of goods sold related to supplying or producing the products. Gross sales are helpful when it comes to calculating the total revenue. This is why a company's sales are usually taken as a small subsection of its revenue. For example, if a parts manufacturer company calculated its annual sales, it would calculate the gross sales by following this formula:

(total sales) - (COGS) = (gross sales)

Once you have this sum, the business can calculate its net sales.

Related: How to work out gross profit and why it's important

What is revenue?

Revenue is a term used to describe a company's total income due to incoming assets, sales or investment. Revenue can be helpful when accounting for a company's sales. The total revenue of a company may include sources of income from other places and sales. For this reason, revenue is a company's net revenue and gross revenue. Types of revenue include:

Non-operating revenue

Some companies include both incomes from supplementary sources and sales as part of their revenue. This is because most companies generate income in addition to sales of products or services during periods of time that they're cash poor. In addition to this, non-operating revenue gains can also come from money granted through interest, litigation and fees and investment windfalls and the odd event. Regardless of where the money is from, these periodical gains also contribute to the overall cash flow of a company.

Related: What is revenue? (With types and examples)

Net revenue

Net revenue refers to a company's total revenue once it's subtracted all its overall expenses. For example, this includes costs of overhead like rent, payroll and utilities and goods or services sold. The net revenue tends to account for all a company's expenses, directly related to credit payments, sales operations, rent, mortgage, overhead costs or utilities that are used to maintain and look after the overall business.

Gross revenue

A business's gross revenue refers to the total income that the company earns from non-operational income before tax deductions or any subtractions take place and sales. For example, if an equipment retailer wants to calculate its total gross revenue for its bi-annual reporting period. The company brings together and looks at all its income sources from its investments, total sales and any interest or assets accrued for the period.

Key differences between sales and revenue

Whether it's gross sales, sales, net sales or revenue, it's important to consider the industry or sector that you're looking at, especially when analysing a business' financial data. It's also vital to make a clear distinction between revenue and sales. This is because some revenue sources could be a one-off action. It's primarily for this reason that investors tend to focus on sales more so than revenue.

Even more importantly, they compare sales from the previous period like a year or two earlier with the current period. That number gives an indication of whether a business is in fact contracting or growing. The difference between sales and revenue is highly relevant to external investors or sponsors viewing company reports. A company's sales are very indicative of the performance of your company's core operations, while its revenue could be padded to factor in rare events such as the sale of a property. While this is the biggest difference between sales and revenue, there are several others, including:

Source of sales vs. revenue

The sources of an organisation's income differ between sales and revenue. For example, an organisation's total revenue could include income from a collection of interest or investments, liquidated assets or donations in addition to its sales. The sources of the income usually are only inclusive of the cash flow from sales or service transactions.

Value of sales vs. revenue

Sales are also inclusive of cash flow generated from customers that pay. Conversely, revenue refers to the total income generated by a business during a set period of time. As a result, revenue tends to be the larger amount or bigger number. When sales income creates a greater value than a business generates in comparison to the total revenue, this indicates that a business has incurred more expenses or costs.

Related: What is sales commission? Plus commission agreement template

Applications of sales vs. revenue

The uses for sales and revenue calculations are also somewhat different. When a company's accountant does the revenue calculations, they often include all non-operational incomes, all sales, operational and non-operational expenses in their calculations to offer important information about the financial standing of an organisation or business. In contrast, you can use the sales values when calculating the profitability and profit margins of a company.

Both sales and revenue are very important income figures that help organisations to measure their overall profitability and financial standing. If you better understand the ways in which sales income can impact revenue, you could help businesses stay on top of and manage their financial success.

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