Ancillary Revenue: Definition, Examples & Maximization

Ancillary revenue is income a company generates from selling goods and services that are not a primary revenue streamRevenue StreamsRevenue Streams are the various sources from which a business earns money from the sale of goods or provision of services. The types of or core business operation. For example, a sporting arena is known for selling tickets to games and any other events being hosted in the space. In this case, ancillary revenue would come from concessions sales, such as the food and beverages sold at the arena.

Nearly every business – except, perhaps, for extremely small or new companies – generates some type of ancillary revenue. In most cases, it is used to bolster or complement revenue from the sales of the company’s primary goods and services. However, in some instances, a company may find that ancillary revenue surpasses those earned from their main offerings. In such cases, businesses may change their marketing and sales strategies5 P's of MarketingThe 5 P's of Marketing – Product, Price, Promotion, Place, and People – are key marketing elements used to position a business strategically. The 5 P's of – or their business model as a whole – to make ancillary sales the focus of their business.

Ancillary Revenue Examples

Consider a liquor store. The company’s primary offering is its stock of liquor, and it depends on revenues from liquor sales to stay open and potentially grow the business. However, most liquor stores sell additional items, such as cigarettes, lighters, and shot glasses. The ancillary revenue earned from the items is used to expand the revenue the business generates from the sales of its primary goods.

A more recent and specific example involves 7-Eleven convenience stores. The convenience store company is well known for selling a wide range of goods because the brandBrand EquityIn marketing, brand equity refers to the value of a brand and is determined by the consumer’s perception of the brand. Brand equity can be positive or is built on stocking and selling items that people use and consume daily, keeping everything in one place for convenience.

In 2017, 7-Eleven released its own line of cost-efficient (inexpensive) cosmetics. While the sales from cosmetics are unlikely to replace primary revenue sources, it’s quickly become a fast-growing source of ancillary revenue for the convenience store chain. The introduction of the new product line indicates that the company is continually seeking ways to increase its sales revenueSales RevenueSales revenue is the income received by a company from its sales of goods or the provision of services. In accounting, the terms "sales" and by thinking of more products that consumers may be looking to purchase at a convenience store.

Ancillary Revenue in the Airline Industry

Perhaps the best and most widely-known example of ancillary revenue comes from the airline industry. Ticket sales remain the leading source of revenue for airlines. However, ancillary revenue in the industry comes from the sale of things like in-flight pay-per-view movies, the headphones used to listen to these movies, and special meal packages.

In more recent years, airlines have seen declines in sales from ticket purchases. To compensate for the lower ticket revenues, additional ancillary revenue is earned from added charges for checked bags and luggage in general. To the consternation of many flyers, competing airlines that had previously avoided such charges have also adopted the practice. For airlines that already had luggage charges in place, higher prices and additional fees have also been instituted.

Regardless of what industry or space a company operates in, it most likely generates some form of ancillary revenue. In the event that the additional revenue surpasses the company’s former primary means of earnings, the company’s business model may be changed to help the company thrive.

More Resources

We hope you enjoyed reading this CFI guide to revenue. CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)®Become a Certified Financial Modeling & Valuation Analyst (FMVA)®CFI's Financial Modeling and Valuation Analyst (FMVA)® certification will help you gain the confidence you need in your finance career. Enroll today! certification program, designed to help anyone become a world-class financial analyst. The following CFI resources will be helpful in furthering your financial education:

• Analysis of Financial StatementsAnalysis of Financial StatementsHow to perform Analysis of Financial Statements. This guide will teach you to perform financial statement analysis of the income statement,
• Projecting Balance Sheet ItemsProjecting Balance Sheet Line ItemsProjecting balance sheet line items involves analyzing working capital, PP&E, debt share capital and net income. This guide breaks down how to calculate
• Revenue StreamsRevenue StreamsRevenue Streams are the various sources from which a business earns money from the sale of goods or provision of services. The types of
• Theory of AccountingFinancial Accounting TheoryFinancial Accounting Theory explains the why behind accounting - the reasons why transactions are reported in certain ways. This guide will