What is Service Revenue?

Service revenue is the sales reported by a business that relate to services provided to its customers. This revenue has usually already been billed, but it may be recognized even if unbilled, as long as the revenue has been earned. Service revenue does not include any income from the shipment of goods, nor does it include any interest income.

Characteristics of Service Revenue

The key characteristics of service revenue are as follows:

Earned from services. Service revenue is generated from activities like consulting, maintenance, repairs, legal advice, or subscriptions. Unlike product sales, no physical goods are exchanged.
Recognized when the service is performed. Under accrual accounting, service revenue is recorded when the service is delivered, not necessarily when payment is received.
Typically involves labor, expertise, or time. Service revenue is often tied to professional skills, knowledge, or labor. For example, a consultant earns revenue by providing strategic advice to clients.
Affected by customer experience. Unlike product sales, the quality of service impacts revenue retention and referrals. Good service can lead to repeat customers and word-of-mouth marketing.
May involve additional costs. While service businesses don’t have traditional inventory costs, they may have direct costs like wages, travel expenses, or software tools needed to deliver the service.

Presentation of Service Revenue

Service revenue may be presented in a separate line item, which appears near the top of the income statement. Alternatively, if the number is relatively small, it may be aggregated with product revenue and presented as a single number. If there are sales allowances associated with service revenue, the allowances may be paired with and offset the service revenue, or they may be combined in the income statement presentation.