Financial reports help businesses see how they're doing and make better decisions. In this series, each article will explain a specific report, covering what it is, why a CPA needs it, how the numbers are calculated, and a simple example to show how it works. Whether it's about tracking income, managing costs, or checking how well your team is working, these articles will give you the basics to make sense of these important reports.
Revenue by Service Item
What’s in this Report?
Does include:
Archived and deleted Service Items
Inactive clients
Does not include:
Archived and deleted clients
Archived and deleted Invoices
Report type | Column description | Permissions requirements |
Revenue by Service Item: shows a revenue breakdown by the assigned service item | Service Item: services for which the firm charges customers Date Range: revenue accrued between the chosen dates Total: total revenue from the chosen period | Billing Reports, Access To All Clients |
📊 What is a Revenue by Service Item Report?
A Revenue by Service Item Report is a financial document that breaks down the revenue a business earns from each specific service or product it offers. Instead of focusing on clients, this report focuses on the individual items or services that generate income. It helps the business understand which products or services are the most profitable and contribute the most to overall revenue.
👨🏻💼 Why Would a CPA Need It?
A CPA would need this report for several important reasons:
Product/Service Profitability: The report helps the CPA analyze which services or products are generating the most revenue. This is essential for determining where the business should focus its efforts or consider price adjustments.
Cost Management: By understanding which service items are the most profitable, the CPA can advise on managing costs related to less profitable items or suggest discontinuing unprofitable services.
Strategic Decision-Making: This report provides insights that can guide business strategy, such as expanding high-revenue services, developing new offerings similar to top performers, or marketing certain services more aggressively.
Inventory and Resource Allocation: For businesses that provide both goods and services, this report can help in deciding how to allocate resources like inventory or labor to maximize profitability.
Forecasting and Budgeting: The report is useful for creating more accurate forecasts and budgets by predicting future revenue based on the performance of individual service items.
🔢 How is the Math Calculated for This Report?
The math behind a Revenue by Service Item Report involves several straightforward steps:
Identifying Service Items:
The first step is to list all the service items or products offered by the business. Each service item is tracked separately in the accounting system.
Summing Revenue by Service Item:
For each service item, the total revenue is calculated by summing all the sales or billable activities related to that item.
For example, if a business offers a consulting service that generates $10,000 in one month, that’s the revenue for that specific service item.
Calculating Total Revenue:
The total revenue for the business is calculated by summing the revenue from all service items.
If the company offers three services generating $10,000, $20,000, and $30,000 respectively, the total revenue would be $60,000.
Percentage of Total Revenue:
To understand each service item’s contribution, the percentage of total revenue is calculated for each item.
For example, if Service A generates $10,000 out of a total revenue of $60,000, Service A contributes 16.67% to the total revenue.
✏️ Example Calculation:
Let’s assume a company has the following revenue data for its service items:
Consulting Service:
Revenue: $20,000
Training Program:
Revenue: $15,000
Software Development:
Revenue: $25,000
Maintenance Service:
Revenue: $10,000
Calculations:
Consulting Service:
Total Revenue = $20,000
Percentage of Total Revenue = ($20,000 / $70,000) * 100 = 28.57%
Training Program:
Total Revenue = $15,000
Percentage of Total Revenue = ($15,000 / $70,000) * 100 = 21.43%
Software Development:
Total Revenue = $25,000
Percentage of Total Revenue = ($25,000 / $70,000) * 100 = 35.71%
Maintenance Service:
Total Revenue = $10,000
Percentage of Total Revenue = ($10,000 / $70,000) * 100 = 14.29%
The report would list each service item along with the total revenue it generated and its percentage of the overall revenue. This helps the CPA and the business understand which services are driving the most income and where adjustments might be needed to improve profitability.