What Is Revenue?

Revenue is the starting point of every P&L and the primary driver of most financial models. Getting the revenue forecast right is the single most important — and often most challenging — task in FP&A, because virtually every other line item in the plan is influenced by revenue assumptions.

Revenue recognition is governed by accounting standards — IFRS 15 or FRS 102 Section 23 in the UK — which dictate when revenue can be recorded. The core principle is that revenue is recognised when performance obligations are satisfied, not necessarily when cash is received. For SaaS businesses, this means spreading subscription revenue over the contract period. For project-based businesses, revenue may be recognised on a percentage-of-completion basis.

FP&A teams typically model revenue using a combination of approaches. Top-down models start with market size and capture rates. Bottom-up models build from sales pipeline, conversion rates, and average deal sizes. Driver-based models link revenue to operational metrics like website traffic, leads, or active users.

For subscription businesses, revenue modelling involves starting MRR, new business, expansion, contraction, and churn. For transactional businesses, revenue depends on volume and pricing. For enterprise sales, pipeline coverage ratios and sales cycle lengths are key drivers.

UK businesses must also consider VAT treatment — standard-rated, reduced-rated, zero-rated, or exempt supplies — as this affects reported revenue and cash flow timing. Export revenue introduces currency risk that should be modelled in forecasts.