What is operating revenue?
Operating revenue is the total income a business generates through its main activities. In most industries, operating revenue primarily consists of sales of products or services.
Businesses record two types of revenue: operating revenue and non-operating revenue. Operating revenue usually comes from day-to-day business operations, whereas non-operating revenue includes other income streams like legal fees or investment dividends. Of the two types, operating revenue is a better indicator of the viability of the business model and its profitability.
Operating revenue gets recorded on a company’s income statement, also known as a profit-and-loss (P&L) statement. By tracking operating revenue over time, investors see whether sales productivity has a positive or negative trend.
Revenue management software helps department managers monitor sales performance and plan special pricing offers. Plus, this software tracks revenue per project or customer, allowing companies to understand their most profitable sources.
Importance of operating revenue
Owners, investors, and stakeholders analyze operating revenue to gauge a company’s financial health.
- Owners can use this metric to determine their sales performance and productivity. New start-ups may use operating revenue to see if their product or service is viable. Meanwhile, established companies can compare year-over-year growth before changing sales plans, services, or pricing.
- Banks look at a company’s operating revenue to determine its eligibility for loans. Organizations often rely on these loans to reinvest in their business by purchasing expensive equipment or expanding their business into new offerings.
- Stakeholders study companies’ income statements and pay special attention to their operating revenue when considering their performance. Companies with healthy operating revenue often have better cash flow and are safer investment opportunities.
Operating revenue best practices
From small start-ups to large enterprises, businesses aim to find ways to increase their operating revenue. Some steps an organization can take to increase its earnings from goods and services include:
- Seeking out new customers: One way to increase sales is to find new leads. A brick-and-mortar store could host an in-person event related to their industry, like a tasting at a wine shop or a reading at a bookstore. An online retailer could seek new customers by increasing its presence on social network platforms and interacting with followers.
- Investing in existing customers: Companies with lower budgets for lead generation can turn their attention to previously acquired customers. Nurturing these relationships through email or phone outreach keeps customers returning to purchase more items. Cross-selling or upselling customers at the time of purchase adds opportunities to increase sales.
- Increasing prices: Increasing prices is often the first method a company uses to try to increase operating revenue. But if prices are increased too quickly or too much, product demand will drop. Businesses should raise prices slowly in line with competitors’ pricing for similar items. Companies often turn to pricing software to better manage the price of their products.
- Offering add-on features: Selling smaller items alongside big-ticket items, such as a phone case to go with a phone, can increase revenue over time. Bundling items raises a company’s average transaction value.
- Using effective marketing strategies: Businesses should analyze their ideal client persona and target their marketing accordingly. Depending on the customer and industry, expanding to an omnichannel online presence or a more tangible approach via brochures and magazine ads could be the key to increased sales and revenue.
Operating revenue vs. non-operating revenue
Together, operating and non-operating revenue represent a company’s total revenue. Separately, each metric can convey unique information about the financial standing of a business.
Operating revenue shows how much money was generated through a company’s core activities.
Non-operating revenue is all money made by a business outside its primary, routine operations.
Operating revenue is often a better indicator of how well a business is functioning and its stability because it shows whether there is enough cash to cover expenditures. However, companies should still record and track non-operating revenue as it contributes to the total revenue generated by the business.
Kelly Fiorini
Kelly Fiorini is a freelance writer for G2. After ten years as a teacher, Kelly now creates content for mostly B2B SaaS clients. In her free time, she’s usually reading, spilling coffee, walking her dogs, and trying to keep her plants alive. Kelly received her Bachelor of Arts in English from the University of Notre Dame and her Master of Arts in Teaching from the University of Louisville.
