Revenue is the most important number in your business. It sits at the top of your profit and loss statement, it drives every forecast you build, and it determines how much tax you owe. Yet most business owners we work with don't fully understand what counts as revenue, when to recognise it, or how to track it properly.
This isn't a textbook definition exercise. This is a practical guide for Australian business owners who want to understand their revenue clearly, set up their systems correctly, and stop making the mistakes that lead to misleading reports and nasty surprises at EOFY.
Whether you run a consultancy, a SaaS product, a trades business, or an e-commerce store, this guide covers the mechanics of revenue from the ground up.
Revenue is income earned from your core business activities. If you're a marketing agency, it's the fees you charge clients. If you sell products online, it's the sale price of those products. If you run a SaaS platform, it's the subscription fees your customers pay for access.
That sounds simple, but the confusion starts when business owners treat everything that hits their bank account as revenue. It isn't.
The following are not revenue: GST collected from customers (you're holding that on behalf of the ATO and it needs to be remitted), loan proceeds (that's a liability, not income), proceeds from selling a business asset like a vehicle or equipment (that's a capital transaction, not operating revenue), interest earned on your business bank account (that's other income, not core revenue), government grants and incentives (these are typically classified separately depending on their nature), and money received for work you haven't done yet (that's a liability called deferred revenue or income in advance, which we'll cover in detail later).
Getting this distinction right matters because every decision you make based on your revenue figure - hiring, investing, forecasting, pricing - is only as good as the accuracy of that number.
Revenue looks different depending on how your business charges for what it delivers. Most businesses at the $2M+ mark have a mix of these models running simultaneously, which is exactly why tracking needs to be set up properly from the start.
You do work, you track time or deliverables, and you invoice the client. This is common for consultancies, professional services firms, and trades businesses. Revenue is recognised when the work is performed, not when the invoice is sent and not when the client pays. If you completed $20,000 worth of work in June but didn't invoice until July, that's June revenue.
You agree on a total price for a defined scope of work. A website build for $50,000, a construction project for $200,000, a consulting engagement for $80,000. Revenue should be recognised progressively as you deliver, proportional to completion. If you're halfway through a $50,000 project at month-end, you should be recognising roughly $25,000 in revenue to that point, regardless of what you've invoiced.
The two common approaches are percentage-of-completion (recognise revenue based on the proportion of total work completed) and milestone-based (recognise revenue as specific deliverables or stages are completed and accepted). Either works, but you need to pick one and apply it consistently.
The client pays a fixed monthly amount for ongoing access to your services. Revenue is recognised each month as you make yourself available and deliver. If a client pays $5,000 per month on retainer but has a quiet month with minimal requests, that's still $5,000 of revenue for that month - the retainer is for availability, not just utilisation.
Where it gets tricky is when retainers include rollover provisions for unused hours, or when the retainer covers a bank of hours that expires. The commercial terms of your agreement determine the accounting treatment, so make sure your contracts are clear.
Customers pay monthly or annually for access to your software or platform. Monthly subscriptions are straightforward: $500 per month equals $500 of revenue each month.
Annual subscriptions paid upfront are where most SaaS founders get it wrong. If a customer pays $12,000 upfront for a 12-month subscription, that is not $12,000 of revenue in the month it lands in your bank account. It's $1,000 of revenue per month over the 12-month subscription period. The remaining $11,000 sits on your balance sheet as deferred revenue (a liability) and is released to the P&L month by month as you earn it.
This matters enormously for SaaS businesses because overstating revenue in the month of collection then understating it for the next 11 months makes your monthly performance impossible to read accurately.
Revenue is recognised at the point of sale or delivery, depending on your terms. For a physical store, it's at the register. For an online store, it's typically when the goods are dispatched or delivered.
Key adjustments to consider: returns and refunds reduce your revenue (they shouldn't sit in a separate expense account), shipping charges may or may not be part of your revenue depending on whether you charge customers for shipping or absorb it, and for marketplace sellers (Amazon, eBay, Etsy), whether your revenue is the gross sale price or the net amount after the marketplace takes its commission depends on whether you're acting as the principal or the agent. If the marketplace controls the transaction, pricing, and customer relationship, you're likely the agent and your revenue is the net amount only.
One-off charges for setup, onboarding, licensing, or activation. Revenue is recognised when the service is delivered. If you charge a $2,000 setup fee at the start of a 12-month contract, you need to consider whether that fee relates to a distinct service (setup is genuinely separate and valuable on its own) or whether it's really just part of the overall contract price spread over the term. If it's the latter, you should be spreading that $2,000 over 12 months alongside the subscription revenue.
Most businesses at scale have multiple revenue streams. A consulting firm might have retainer clients, project-based work, and training workshops. A SaaS company might have subscription revenue, implementation fees, and support retainers. Each stream needs to be tracked separately so you can understand which parts of the business are growing, which are profitable, and where to invest.
This is the section that separates a business with reliable numbers from one that's flying blind. Revenue recognition is about when you record revenue in your books. Cut-off is about making sure revenue lands in the right period.
Revenue is recognised when it is earned, not when cash is received. This is the single most important concept in this entire guide.
If you did the work in June but the client paid in August, that's June revenue. If a customer paid you in March for a project you'll deliver in May, that's May revenue. If a subscriber pays annually in January, you earn one-twelfth of that payment each month from January to December.
This is the difference between cash basis accounting (record it when cash moves) and accrual basis accounting (record it when it's earned or incurred). For any business beyond the very early stages, accrual is the only way to get meaningful monthly reporting.
Cut-off is the process of making sure revenue is recorded in the correct period at each month-end, quarter-end, and financial year-end.
Get cut-off wrong and your monthly P&L becomes meaningless. One month looks incredible because two months' worth of revenue landed in it. The next month looks terrible because the work was already recognised in the prior period. Neither month reflects reality, and you can't make good decisions from bad data.
At every month-end close, you should be asking: is there work we completed this month that hasn't been invoiced yet? If yes, accrue it. Is there cash we received this month for work we haven't done yet? If yes, defer it.
Accrued revenue is work done but not yet invoiced. This is extremely common in project-based and time-and-materials businesses where invoicing happens on a cycle (fortnightly, monthly, on milestone completion) rather than in real-time.
If your team did $30,000 worth of work in June but you don't invoice until the 7th of July, your June P&L should include that $30,000 as accrued revenue. Without this adjustment, June is understated and July is overstated. In Xero, you'd create a manual journal debiting Accrued Revenue (a current asset on the balance sheet) and crediting your revenue account. When the invoice is raised in July, you reverse the accrual.
Deferred revenue is the opposite: cash received for work not yet performed. It's a liability, not revenue, because you owe the customer the goods or services they've paid for.
Common examples include annual subscription payments, project deposits, retainers paid in advance, gift vouchers and credits, and prepaid training or event tickets. In Xero, this should sit in a liability account (Income in Advance or Deferred Revenue) until you deliver. Each month, you journal the earned portion from the liability to revenue.
A customer pays you a $10,000 deposit on a $50,000 project. That deposit is not revenue. It's cash received in advance for work you haven't done. It sits as a liability until you start delivering.
This is one of the most common mistakes we see. A business receives a deposit, it hits the bank account, and the owner sees it as income. Their P&L looks great that month. Then when the work is delivered over the following months, revenue appears understated because the money was already "counted." The result is a P&L that tells you nothing useful about actual business performance.
The same applies to customer credits, gift cards, and prepaid balances. Cash received is not the same as revenue earned.
Australian businesses follow AASB 15 (Revenue from Contracts with Customers) for revenue recognition. The standard boils down to five steps: identify the contract you have with the customer, identify what you're delivering (the "performance obligations"), determine the total price, allocate that price across each thing you're delivering, and recognise revenue as you deliver each one.
You don't need to memorise the standard. But understanding that the framework exists - and that it's based on delivery, not invoicing or cash collection - is essential for getting your numbers right.
These are three different numbers and they should not be the same. Business owners frequently confuse them.
Gross revenue is the total amount billed to customers before any adjustments. Every invoice, every sale, every subscription charge. This is the raw top line.
Net revenue is gross revenue minus adjustments: discounts given, refunds processed, returns accepted, credit notes issued, and any allowances. Net revenue is what your P&L should show as the top line because it reflects the actual value of goods and services delivered and retained.
If you gave a client a 10% discount on a $10,000 invoice, your gross revenue is $10,000 but your net revenue is $9,000. If a customer returned $500 worth of products, that $500 comes off revenue, it doesn't go into an expense account.
Taxable income is a completely different calculation. It's your revenue minus allowable deductions as determined by the ATO. It's not the same as accounting profit because the ATO has its own rules about what's deductible, when it's deductible, and what needs to be added back. Your accountant handles this for your tax return, but the point is: don't confuse your P&L bottom line with your taxable income. They're rarely the same number.
If you're GST-registered (and at this revenue size, you should be), GST is not revenue. When you charge a client $11,000 including GST, your revenue is $10,000. The $1,000 GST component is collected on behalf of the ATO and remitted through your BAS.
Make sure your Xero reports are set to show GST-exclusive figures. If they're showing GST-inclusive numbers, your revenue is overstated by approximately 9% and every ratio and metric you calculate from it is wrong.
If you sell through a marketplace, platform, or intermediary that takes a commission, you need to determine whether you're acting as the principal or the agent in the transaction.
If you control the goods or services, set the price, and bear the inventory risk, you're the principal and your revenue is the gross sale amount (with the marketplace commission recorded as an expense). If the marketplace controls the transaction and you're essentially providing goods on their platform, you may be the agent, and your revenue is only the net amount you receive after their commission.
Getting this wrong can significantly overstate or understate your revenue, which flows through to every financial metric you report.
Understanding revenue conceptually is one thing. Setting up your systems to track it accurately is another. Here's the practical side.
Stop dumping everything into a single "Sales" account. Your chart of accounts should break revenue into streams that match how your business operates. If you're a consulting firm with three service lines (strategy, implementation, and training), you want three revenue accounts at minimum. If you run a SaaS product with subscription revenue and implementation fees, separate them.
A basic structure might look like: Revenue - Consulting (Strategy), Revenue - Consulting (Implementation), Revenue - Training and Workshops, Revenue - Subscription (Monthly), Revenue - Subscription (Annual), Revenue - Setup/Onboarding Fees. This takes 10 minutes to set up in Xero and gives you visibility you'll never get from a single account.
Use Xero's tracking categories to add another layer of reporting without cluttering your chart of accounts. Common tracking categories include department, client or project, and location. This lets you run reports like "revenue by service line by client" or "revenue by location by month" without needing dozens of revenue accounts.
Make sure your default tax rate on revenue accounts is set correctly (GST on Income for standard taxable supplies, GST Free Income for exports or GST-free services). Getting this wrong at the account level means every transaction coded there inherits the wrong GST treatment.
Late and inconsistent invoicing is the number one reason revenue reports are unreliable. If you invoice two weeks after month-end for work done in the prior month, your monthly revenue figures will always be lagging and wrong unless you're doing accruals (which adds unnecessary manual work that proper invoicing would avoid).
Invoice promptly, use consistent descriptions that match your revenue categories, code to the correct revenue account every time, and set a rhythm (weekly invoicing at minimum for time-based work).
At each month-end, run through a simple checklist. Does invoiced revenue match the work delivered this month? If not, do you need accruals for unbilled work or deferrals for prepaid amounts? Does cash received reconcile to your outstanding debtors? Are there any credit notes, refunds, or adjustments that need processing? Are deferred revenue balances releasing correctly each month?
This doesn't need to take long. For most businesses, 30-60 minutes of review at month-end catches issues before they compound.
As a business owner, the revenue metrics you should be reviewing monthly include: total revenue vs prior month, total revenue vs same month last year, revenue by stream or service line, revenue vs budget or forecast, debtor ageing (because revenue means nothing if you can't collect it), and gross margin by revenue stream.
Revenue is only useful as a decision-making tool if you can see it broken down, compared to something, and tracked over time. A single "total revenue" number without context tells you almost nothing.
These are the errors we see regularly across Australian businesses of all sizes. Most of them are easy to fix once you know they exist.
Recognising annual subscription or prepaid contract revenue all in the month cash is received, rather than spreading it over the service period. This flatters one month and understates every other month.
Treating customer deposits as revenue before the work is done. A deposit is a liability until you deliver.
Not accruing revenue for work completed but not yet invoiced at month-end. This understates your actual performance for the period.
Reporting GST-inclusive figures as revenue. Your top line should be GST-exclusive. Check your Xero report settings.
Mixing up revenue with cash receipts. Cash in the bank is not the same as revenue earned. A client paying an old invoice doesn't generate new revenue - that revenue was already recognised when the work was done.
Not segmenting revenue streams. If all your income sits in one account, you can't tell which parts of your business are growing and which are stagnating.
Recording the full gross value of marketplace sales when you're acting as the agent, not the principal. Your revenue is the net amount.
Putting refunds and credit notes into an expense account rather than offsetting them against revenue. Refunds reduce revenue; they're not a cost of doing business.
Ignoring deferred revenue balances and letting them build up on the balance sheet without monthly releases. This means your P&L is understating revenue every month while your balance sheet carries a growing liability that nobody is managing.
When your revenue is tracked accurately, recognised in the right periods, and broken down into meaningful segments, every other financial metric in your business becomes reliable. Your gross margins are real. Your forecasts are based on actual performance. Your cash flow projections connect to what's actually happening. And the decisions you make - about hiring, pricing, investing, and scaling - are grounded in numbers you can trust.
Revenue is the foundation. Get it right, and everything built on top of it holds up.
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