What is ancillary revenue?

Ancillary revenue means income generated from a service or product line that is not the company’s core business. Let’s dive a little more into ancillary revenue definition and how it can be calculated.

Ancillary revenue is generated from goods or services that are not part of the company’s core business. They can enhance a company’s main services or product lines. One of the prime ancillary revenue examples can be a bakery selling a range of jams and butter. These products can help the bakery diversify sources of its total revenue. Sales of food and beverages in the gaming arena can also be sources of ancillary revenue

Companies could launch a new product or service related to their core business or modify an existing product. This creates a new opportunity for growth. In some cases, ancillary revenue can become the main source of revenue. Apple, known for its iPhones, has diversified its source of income over the years with the help of ancillary revenues. Its MacBook, iPad, wearables, home automation and services were all ancillary products initially.

We have seen examples of ancillary revenue in the banking sector over decades. Banks have ventured into other services, like brokerage, wealth management, wire transfers and more. 

Ancillary revenue can further be explained with the help of a real-world example. A petrol station sees an opportunity as customers ask about the nearest place for food and rest. The owners decide to offer rooms, a mini grocery store and restaurant. Gradually, ancillary revenue surpasses petrol sales.

How to calculate ancillary revenue?

Going back to the aforementioned petrol station, to calculate total revenue, the business would examine all financial records to determine how much money each separate unit has made. To determine the percentage of revenue earned from ancillary services, divide the individual categories by the total revenue.