Operating revenue is any type of income that is generated as a result of the day to day operations of a business. Revenue of this type usually includes all income that is derived from sales efforts, or the lease of assets owned by the business. The goal of any business is to establish a steady flow of operating revenue and thus ensure that the business operation is able to continue functioning at a profit.
In order to calculate operating revenue, it is necessary to determine what constitutes the normal business operations of the company. This often involves direct sales to steady customers, as well as any rental or leasing activity that is associated with properties or equipment that is owned by the business. All these forms of revenue are then adjusted to allow for any discounts or returns that take place during the time frame that is under consideration. After making those adjustments, it is possible to determine the net operating revenue for the period, and compare that figure to the cost of operations. Assuming that the revenue exceeds the costs, the company is operating at a profit and has an excellent chance of continuing to remain a viable operation.
Businesses actively look for ways to boost their operating revenue. This may come in the form of offering ancillary products that are intended to work with or otherwise support other products offered, or to actively cultivate a presence with a broader range of consumers. The idea is often to make the most efficient use of production efforts, so that the highest volume of products is produced using the same amount of resource. In the event that more products can be sold, this will in turn increase gross sales and have a positive effect on the amount of net sales for any given period.
Some companies do experience situations where the operating revenue for a given period does not exceed operating costs. This is particularly true in industries where consumer demand is highly affected by seasonal factors. When this is the case, businesses seek to generate high volumes of operating revenue during the times of year when demand is high, and utilize those proceeds to continue operation during off-season periods. For companies that are not affected by seasonal changes in consumer demand, undergoing a period where the operating revenue does not cover operational expenses can be a strong indicator of impending financial issues that could undermine the entire operation. In this scenario, steps should be taken to isolate the causes for the disparity, and correct them as soon as possible.
