Sales Vs Revenue – What’s The Difference?
A common question Sales Professionals and Business Owners ask, is what is the difference between sales vs revenue?
In this article, we’ll be breaking down the sales vs revenue question, as well as what key indicators you should be focusing on to grow your business or sales income.
Sales Vs Revenue – What’s The Difference?
Generally speaking; sales is a component of revenue.
Revenue would be the overarching umbrella of ways in which a business or individual makes money, where sales is the income purely made from selling products or services.
Below is a further breakdown of both.
Sales
Sales is the total income made by a business or individual before taxes and expenses.
Many business’s or individuals brag about the amount of sales they make, as if this is a good metric to base success on.
In fact – it doesn’t rally mean much at all.
Before I explain, here’s a quote by Robert Kiyosaki that gives it more context.
“It’s not about how much money you make. It’s about how much money you keep.” – Robert Kiyosaki
For example.
Person A sells a product for $300. They make 50 sales a week, making their sales revenue $15,000.
Person B sells a product for $250. They also make 50 sales a week, bringing their sales revenue to $12,500.
Now on paper and without exploring this further, if you were comparing both – people would assume that person A is more successful than person B, because they make more sales revenue.
However; is that really the case?
If person A spends $250 to acquire one customer for $300 in sales revenue, then their income before taxes and other expenses is $50. This means they make $2500.
Person B spends $50 to acquire a customer for their $250 product, they make $10,000 a week.
Quite the stark difference.
However; there are still other factors to be looked at.
Are they both located in the city or country? Taxes may now play a factor.
What are their other overheads? Salaries, rent, and other operational expenses?
This breakdown is to explain that sales is a part of revenue; however, the sales number isn’t the most important thing to look at.
It’s about what you keep, not just how much you make.
Revenue
Revenue is the overall income made by a business or individual, which doesn’t necessarily have to be purely from sales.
Although most business’s rely on sales to be their biggest driving force behind revenue; below is a list of other potential ways they could make money.
These include:
Service on costs: does the business also charge a service fee to install a product or service after a sale is made?
Memberships: once a sale is made, does the business have a membership fee attached?
Licensing: a franchise may fit this bill; do they charge a fee to use their products, services, or brand name?
Other investments: perhaps the business or individual also makes revenue from bonds, shares, or interest from peer to peer lending?
Overall; revenue is more important than sales, as it is the overarching way a business or individual makes an income.
Sales Vs Revenue – How It’s Calculated
Sales is calculated by the number of products or services sold, multiplied by how much it sold for.
As previously mentioned, a $250 product at 50 sales a week, would equal $12,500.
Revenue is calculated by the total amount of income made by a business or individual.
Is they make $12,500 a week in sales, and also $50 in membership fees a week plus $100 in interest from other investments; their income would be $12,650 a week.
Although sales are critical for any business to survive and grow; revenue is always more important than just sales alone.
Metrics You Should Measure
Instead of purely looking at it as a sales vs revenue question, there are other factors to take into account.
Although both are very important metrics to measure; there are other metrics you need to take into account, to truly see the cost of expenditure.
Furthermore; by analysing and measuring the following metrics, you’ll be able to find opportunities to save money, be more efficient, and streamline processes.
Some of these metrics include:
- Sales revenue
- Lifetime value of a customer
- Your retention rates
- The cost of acquiring a customer
- Operational expenses
- Time to close a deal
- Cost per lead
- Your conversion rate
To learn more about this in detail, read the linked article directly below.
Related article: Sales Forecasting – What You Need To Know
Sales Vs Revenue – Final Thoughts
When looking at sales vs revenue; both are important for a business or individual to progress and move forward, however there is a stark difference between the two.
Sales is the lifeblood of any business and is usually the main driving force behind income.
However; revenue is the overall income made by a company, which sales falls under.
When measuring sales and revenue, it’s important to look at your other metrics too, so that you’re not blinded by purely the income made, but also the costs to make that income.
Always remember; it’s not about how much you make, but more importantly – how much you keep.
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