Ancillary Revenue

What Is Ancillary Revenue?

Ancillary revenue is the revenue created from goods or services that contrast from or improve the principal services or product lines of a company. Ancillary income is defined as the revenue created that is not from a company's core products and services.

Instances of ancillary revenue could be a frozen yogurt company that gets into the business of selling frozen yogurt scoopers, or a printer company that starts selling printer ink. Ancillary revenue is important in light of the fact that it can assist companies with broadening a company's revenue stream.

Figuring out Ancillary Revenue

Companies frequently create ancillary revenue by introducing new products and services or by adjusting existing products to branch into new markets. Accordingly, companies can set out new open doors for growth notwithstanding the ancillary revenue.

Most companies have some form of ancillary revenue. These revenues can shift from vehicle washes at gas stations to notices put on air planes. At times, what starts as ancillary revenue can turn into the fundamental source of revenue.

For instance, bites and refreshments at gas stations were initially viewed as secondary product offerings that created ancillary revenue. Nonetheless, when the price of gasoline fell, things sold in the stores of gas stations, like bites and drinks, started to make up a greater share of total revenue. Ultimately, food and drink sales at gas stations outperformed gasoline revenues.

Different industries use actively hope to improve ancillary income. The banking sector has customarily earned its revenue from the interest rates charged on loan and credit products. Albeit the majority of the business' revenue is still from credit products, banks additionally create ancillary revenue, including from wealth management services, wire transfers, and equipment leasing services.

Real World Example of Ancillary Revenue

Apple Inc. (AAPL) is notable for its notorious iPhone, yet the company has diversified its sources of earnings throughout the years by making ancillary revenue.

Below is a table showing the product sales as reported by the company in its 10Q earnings report for the quarter ending on December 28, 2019. The numbers were reported in millions.

We can see that the company created a large portion of its revenue from its equipment products, like the iPhone, Mac, and iPad.

• Almost $70 billion out of the $91.819 billion in total product revenue reported in December 2019 was from the company's core equipment products.
• In any case, ancillary revenue from wearables, for example, headphones and home extras produced more than $10 billion out of 2019 up from $7.3 billion out of 2018 (featured in green).
• Services revenue, remembering from iTunes produced $12.715 billion for 2019 up from $10.875 billion of every 2018.

Apple is a great illustration of a company that is decisively developing its ancillary income so it involves a greater share of the company's total revenue. We can see from the table over that Mac, and iPad revenues were lower in 2019 versus 2018. In any case, revenue growth from the company's ancillary products and services more than offset any revenue declines from less Mac and iPad sales.

Companies that create ancillary revenue can climate periods of sales declines in their core products all the more really, assisting with creating consistent earnings growth over the long term.

Features

• Ancillary revenue is the revenue created from goods or services that vary from or improve the principal services or product lines of a company.
• Ancillary income is defined as the revenue created that is not from a company's core products and services.
• Ancillary revenue is important on the grounds that it can assist companies with enhancing the sources of total revenue.