Revenue
Industry:
Market-Wide
Growth
Valuation
Aliases:
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Short Definition
Revenue is the amount a company earns from selling goods or services in a period. It’s recognized when value is delivered (per your policy/GAAP) and is net of discounts, returns, allowances, and taxes collected for others.
Short Definition
Revenue is the amount a company earns from selling goods or services in a period. It’s recognized when value is delivered (per your policy/GAAP) and is net of discounts, returns, allowances, and taxes collected for others.
Short Definition
Revenue is the amount a company earns from selling goods or services in a period. It’s recognized when value is delivered (per your policy/GAAP) and is net of discounts, returns, allowances, and taxes collected for others.
Why it matters for Investors
Scale & traction: Top-line proof the product sells.
Valuation anchor: Most multiples (EV/Revenue, etc.) start here.
Foundation for margins & cash: Gross profit, operating profit, and cash flow all build on revenue quality and timing.
Why it matters for Investors
Scale & traction: Top-line proof the product sells.
Valuation anchor: Most multiples (EV/Revenue, etc.) start here.
Foundation for margins & cash: Gross profit, operating profit, and cash flow all build on revenue quality and timing.
Why it matters for Investors
Scale & traction: Top-line proof the product sells.
Valuation anchor: Most multiples (EV/Revenue, etc.) start here.
Foundation for margins & cash: Gross profit, operating profit, and cash flow all build on revenue quality and timing.
Formula
Practical considerations -
Show the money you actually keep.
Net revenue = price minus discounts, refunds/returns, sales taxes, shipping you pass through, and partner pass-throughs.
Example: $100 list price − $10 discount − $5 sales tax = $85 net revenue.Principal vs. agent (who’s really selling?).
If you control the product/service delivered → record gross (full price).
If you just match buyers and sellers (a marketplace) → record net (your take rate only).
Example: You charge $100 and pay a courier $80 →
- Principal: revenue $100, cost $80.
- Agent: revenue $20 (your fee), no $80 pass-through.When to record revenue.
Record it when the customer gets what they paid for (item delivered, month of service provided), not when they pay cash.
Example: Invoice in March for April service → revenue in April.Bundles (one price, many things).
Split the bundle price across each item and recognize each piece when it’s delivered.
Example: $120 for software + onboarding → allocate $100 to software (recognized over the month/term) and $20 to onboarding (when done).Usage & variable fees.
Pay-as-you-go charges (per GB, per transaction) are recognized as used or when you can reliably estimate the usage for the period.
Example: 1,000 API calls @ $0.02 → $20 revenue this month.Foreign currency (FX).
Pick a simple rule for converting (e.g., monthly average rate) and use it every month. Consistency > precision.Be consistent (GAAP vs. “adjusted”).
Always show the standard (GAAP) number. If you also show an adjusted version, spell out the bridge from GAAP to adjusted so readers see what you added/removed.
Formula
Practical considerations -
Show the money you actually keep.
Net revenue = price minus discounts, refunds/returns, sales taxes, shipping you pass through, and partner pass-throughs.
Example: $100 list price − $10 discount − $5 sales tax = $85 net revenue.Principal vs. agent (who’s really selling?).
If you control the product/service delivered → record gross (full price).
If you just match buyers and sellers (a marketplace) → record net (your take rate only).
Example: You charge $100 and pay a courier $80 →
- Principal: revenue $100, cost $80.
- Agent: revenue $20 (your fee), no $80 pass-through.When to record revenue.
Record it when the customer gets what they paid for (item delivered, month of service provided), not when they pay cash.
Example: Invoice in March for April service → revenue in April.Bundles (one price, many things).
Split the bundle price across each item and recognize each piece when it’s delivered.
Example: $120 for software + onboarding → allocate $100 to software (recognized over the month/term) and $20 to onboarding (when done).Usage & variable fees.
Pay-as-you-go charges (per GB, per transaction) are recognized as used or when you can reliably estimate the usage for the period.
Example: 1,000 API calls @ $0.02 → $20 revenue this month.Foreign currency (FX).
Pick a simple rule for converting (e.g., monthly average rate) and use it every month. Consistency > precision.Be consistent (GAAP vs. “adjusted”).
Always show the standard (GAAP) number. If you also show an adjusted version, spell out the bridge from GAAP to adjusted so readers see what you added/removed.
Formula
Practical considerations -
Show the money you actually keep.
Net revenue = price minus discounts, refunds/returns, sales taxes, shipping you pass through, and partner pass-throughs.
Example: $100 list price − $10 discount − $5 sales tax = $85 net revenue.Principal vs. agent (who’s really selling?).
If you control the product/service delivered → record gross (full price).
If you just match buyers and sellers (a marketplace) → record net (your take rate only).
Example: You charge $100 and pay a courier $80 →
- Principal: revenue $100, cost $80.
- Agent: revenue $20 (your fee), no $80 pass-through.When to record revenue.
Record it when the customer gets what they paid for (item delivered, month of service provided), not when they pay cash.
Example: Invoice in March for April service → revenue in April.Bundles (one price, many things).
Split the bundle price across each item and recognize each piece when it’s delivered.
Example: $120 for software + onboarding → allocate $100 to software (recognized over the month/term) and $20 to onboarding (when done).Usage & variable fees.
Pay-as-you-go charges (per GB, per transaction) are recognized as used or when you can reliably estimate the usage for the period.
Example: 1,000 API calls @ $0.02 → $20 revenue this month.Foreign currency (FX).
Pick a simple rule for converting (e.g., monthly average rate) and use it every month. Consistency > precision.Be consistent (GAAP vs. “adjusted”).
Always show the standard (GAAP) number. If you also show an adjusted version, spell out the bridge from GAAP to adjusted so readers see what you added/removed.
Worked Example
Line Item | Amount | Notes |
|---|---|---|
Gross Billings (invoiced) | $50,000,000 | All Customer Invoices this period |
Less : Discounts & Coupons | $22,500,000 | Trade discounts, promotions |
Less : Returns & Chargebacks | $8,000,000 | Approved returns, failed payments |
Less : Sales Taxes & Duties | $1,500,000 | Collected for government (pass-through) |
Less : Shipping/ Partner Pass-Throughs | $500,000 | Billed but paid to carrier/partner |
Net Revenue | $50,000,000 | Recognized Revenue |
Notes:
Don’t mix bases: If you net out taxes/ship in revenue, also net matching items in COGS.
Principal vs agent: If you don’t control the product/service, book take rate, not GMV.
Reconcile to cash: Revenue ≠ cash; bridge via Accounts Receivable and deferred revenue.
Worked Example
Line Item | Amount | Notes |
|---|---|---|
Gross Billings (invoiced) | $50,000,000 | All Customer Invoices this period |
Less : Discounts & Coupons | $22,500,000 | Trade discounts, promotions |
Less : Returns & Chargebacks | $8,000,000 | Approved returns, failed payments |
Less : Sales Taxes & Duties | $1,500,000 | Collected for government (pass-through) |
Less : Shipping/ Partner Pass-Throughs | $500,000 | Billed but paid to carrier/partner |
Net Revenue | $50,000,000 | Recognized Revenue |
Notes:
Don’t mix bases: If you net out taxes/ship in revenue, also net matching items in COGS.
Principal vs agent: If you don’t control the product/service, book take rate, not GMV.
Reconcile to cash: Revenue ≠ cash; bridge via Accounts Receivable and deferred revenue.
Worked Example
Line Item | Amount | Notes |
|---|---|---|
Gross Billings (invoiced) | $50,000,000 | All Customer Invoices this period |
Less : Discounts & Coupons | $22,500,000 | Trade discounts, promotions |
Less : Returns & Chargebacks | $8,000,000 | Approved returns, failed payments |
Less : Sales Taxes & Duties | $1,500,000 | Collected for government (pass-through) |
Less : Shipping/ Partner Pass-Throughs | $500,000 | Billed but paid to carrier/partner |
Net Revenue | $50,000,000 | Recognized Revenue |
Notes:
Don’t mix bases: If you net out taxes/ship in revenue, also net matching items in COGS.
Principal vs agent: If you don’t control the product/service, book take rate, not GMV.
Reconcile to cash: Revenue ≠ cash; bridge via Accounts Receivable and deferred revenue.
Best Practices
Write it down. Keep a 1-page policy with a simple test:
Do we control the product/service?
Do we set the final price?
Are we responsible for refunds/quality?Label clearly:
If principal → report gross revenue and show provider payouts in COGS.
If agent → report net (your fee/commission).Split mixed orders. If one transaction has both parts
(e.g., your delivery fee + a restaurant’s food),
show your fee gross, the partner’s price net (only your take shows as revenue).Match costs to presentation:
Gross revenue → include pass-through payouts, freight, payment fees in COGS.
Net revenue → do not double count those payouts in COGS.Taxes & tips. Sales/VAT you collect for the government and tips passed to workers are not revenue.
Refunds/chargebacks. If principal, treat as revenue reductions/COGS. If agent, usually net against your commission.
Show GMV and take rate. For marketplaces, publish GMV (customer spend), Revenue (your cut), and Take rate = Revenue ÷ GMV.
Recheck when terms change. Owning inventory, adding guarantees, or taking price control can flip you from agent → principal. Update the policy and disclose.
Best Practices
Write it down. Keep a 1-page policy with a simple test:
Do we control the product/service?
Do we set the final price?
Are we responsible for refunds/quality?Label clearly:
If principal → report gross revenue and show provider payouts in COGS.
If agent → report net (your fee/commission).Split mixed orders. If one transaction has both parts
(e.g., your delivery fee + a restaurant’s food),
show your fee gross, the partner’s price net (only your take shows as revenue).Match costs to presentation:
Gross revenue → include pass-through payouts, freight, payment fees in COGS.
Net revenue → do not double count those payouts in COGS.Taxes & tips. Sales/VAT you collect for the government and tips passed to workers are not revenue.
Refunds/chargebacks. If principal, treat as revenue reductions/COGS. If agent, usually net against your commission.
Show GMV and take rate. For marketplaces, publish GMV (customer spend), Revenue (your cut), and Take rate = Revenue ÷ GMV.
Recheck when terms change. Owning inventory, adding guarantees, or taking price control can flip you from agent → principal. Update the policy and disclose.
Best Practices
Write it down. Keep a 1-page policy with a simple test:
Do we control the product/service?
Do we set the final price?
Are we responsible for refunds/quality?Label clearly:
If principal → report gross revenue and show provider payouts in COGS.
If agent → report net (your fee/commission).Split mixed orders. If one transaction has both parts
(e.g., your delivery fee + a restaurant’s food),
show your fee gross, the partner’s price net (only your take shows as revenue).Match costs to presentation:
Gross revenue → include pass-through payouts, freight, payment fees in COGS.
Net revenue → do not double count those payouts in COGS.Taxes & tips. Sales/VAT you collect for the government and tips passed to workers are not revenue.
Refunds/chargebacks. If principal, treat as revenue reductions/COGS. If agent, usually net against your commission.
Show GMV and take rate. For marketplaces, publish GMV (customer spend), Revenue (your cut), and Take rate = Revenue ÷ GMV.
Recheck when terms change. Owning inventory, adding guarantees, or taking price control can flip you from agent → principal. Update the policy and disclose.
FAQs
Why does this matter?
It changes revenue and gross margin presentation. Profit can be the same, but investors compare revenue models—so clarity is key.Does who collects the cash decide it?
No. Control does. Cash flow routing alone doesn’t make you principal.Quick rule of thumb?
If you control the good/service before delivery, set the price, and stand behind it, you’re likely principal (gross).Can one order be both principal and agent?
Yes. Split it: your controlled part → gross; the pass-through part → net.Do shipping fees belong in revenue?
If you control shipping as part of your service → gross (with shipping cost in COGS). If you just pass the carrier’s fee → net (often excluded from revenue).Are sales tax and VAT revenue?
No. Amounts collected for the government are not revenue.What about tips or service charges?
Tips passed to workers are not revenue. House service charges you keep usually are revenue.We offer minimum guarantees—principal or agent?
Guarantees and inventory/credit risk often point to principal. Check your contracts.If we switch from net to gross, will profit jump?
Profit may not change, but revenue and COGS go up. Provide a side-by-side reconciliation so readers understand.What metrics should we show?
For platforms: GMV, Revenue (net), Take rate, and Gross profit. That trio makes the model obvious.
FAQs
Why does this matter?
It changes revenue and gross margin presentation. Profit can be the same, but investors compare revenue models—so clarity is key.Does who collects the cash decide it?
No. Control does. Cash flow routing alone doesn’t make you principal.Quick rule of thumb?
If you control the good/service before delivery, set the price, and stand behind it, you’re likely principal (gross).Can one order be both principal and agent?
Yes. Split it: your controlled part → gross; the pass-through part → net.Do shipping fees belong in revenue?
If you control shipping as part of your service → gross (with shipping cost in COGS). If you just pass the carrier’s fee → net (often excluded from revenue).Are sales tax and VAT revenue?
No. Amounts collected for the government are not revenue.What about tips or service charges?
Tips passed to workers are not revenue. House service charges you keep usually are revenue.We offer minimum guarantees—principal or agent?
Guarantees and inventory/credit risk often point to principal. Check your contracts.If we switch from net to gross, will profit jump?
Profit may not change, but revenue and COGS go up. Provide a side-by-side reconciliation so readers understand.What metrics should we show?
For platforms: GMV, Revenue (net), Take rate, and Gross profit. That trio makes the model obvious.
FAQs
Why does this matter?
It changes revenue and gross margin presentation. Profit can be the same, but investors compare revenue models—so clarity is key.Does who collects the cash decide it?
No. Control does. Cash flow routing alone doesn’t make you principal.Quick rule of thumb?
If you control the good/service before delivery, set the price, and stand behind it, you’re likely principal (gross).Can one order be both principal and agent?
Yes. Split it: your controlled part → gross; the pass-through part → net.Do shipping fees belong in revenue?
If you control shipping as part of your service → gross (with shipping cost in COGS). If you just pass the carrier’s fee → net (often excluded from revenue).Are sales tax and VAT revenue?
No. Amounts collected for the government are not revenue.What about tips or service charges?
Tips passed to workers are not revenue. House service charges you keep usually are revenue.We offer minimum guarantees—principal or agent?
Guarantees and inventory/credit risk often point to principal. Check your contracts.If we switch from net to gross, will profit jump?
Profit may not change, but revenue and COGS go up. Provide a side-by-side reconciliation so readers understand.What metrics should we show?
For platforms: GMV, Revenue (net), Take rate, and Gross profit. That trio makes the model obvious.
Related Metrics
Children / Components: Price, Quantity, Discounts, Returns, Taxes, Pass-throughs, Deferred Revenue, Accounts Receivables, Gross Profit, Operating Income
Commonly mistaken for:
GMV: Total transaction value; not company revenue unless principal.
Bookings: Signed value; not yet earned.
Billings: Invoiced; may precede revenue.
Cash collected: A cash measure, not an earning measure.
ARR/MRR: Run-rate metrics; not GAAP revenue.
Related Metrics
Children / Components: Price, Quantity, Discounts, Returns, Taxes, Pass-throughs, Deferred Revenue, Accounts Receivables, Gross Profit, Operating Income
Commonly mistaken for:
GMV: Total transaction value; not company revenue unless principal.
Bookings: Signed value; not yet earned.
Billings: Invoiced; may precede revenue.
Cash collected: A cash measure, not an earning measure.
ARR/MRR: Run-rate metrics; not GAAP revenue.
Related Metrics
Children / Components: Price, Quantity, Discounts, Returns, Taxes, Pass-throughs, Deferred Revenue, Accounts Receivables, Gross Profit, Operating Income
Commonly mistaken for:
GMV: Total transaction value; not company revenue unless principal.
Bookings: Signed value; not yet earned.
Billings: Invoiced; may precede revenue.
Cash collected: A cash measure, not an earning measure.
ARR/MRR: Run-rate metrics; not GAAP revenue.
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