# Net Service Revenue

> Net Service Revenue means the total received from offering services using licensed products, minus related direct costs paid to third parties.

**Term:** Net Service Revenue  
**Last updated:** 2026-07-29

## Definition

## What Net Service Revenue Means in a Contract

Net Service Revenue refers to the money a service provider collects from customers for delivering services, reduced by certain direct costs the contract allows to be deducted before the figure is used for further calculations. It is not simply a bookkeeping term borrowed from accounting standards; in a contract it is a defined term that the parties negotiate and rely on for financial obligations such as royalty payments, revenue sharing, or performance benchmarks.

Because the definition is contractual rather than purely accounting-driven, two agreements can use the same phrase but calculate very different numbers depending on which costs are permitted as deductions. This is why the term almost always appears with its own defined-terms clause, spelling out exactly what counts as revenue and what may be subtracted.

In practice, Net Service Revenue is most common in licensing arrangements, franchise agreements, and technology partnerships where one party licenses a product or platform and the other party earns money by offering services built on top of it.

## How Net Service Revenue Is Defined or Measured

The measurement typically starts with gross revenue collected from customers for services rendered using the licensed product, then subtracts a defined list of direct costs paid to third parties. These deductions often include items such as:

- Fees paid to subcontractors or third-party service providers
- Direct transaction or processing costs tied to delivering the service
- Refunds, credits, or cancellations issued to customers
- Taxes collected on behalf of a government but not retained by the provider

What is excluded matters just as much as what is included. Overhead costs like office rent, general administrative salaries, or marketing spend are usually not deductible, since allowing broad deductions would erode the base figure and reduce payments owed under the contract. Well-drafted clauses list deductible items exhaustively rather than using open-ended language like.

## Context

### Relevant circumstances

- When a company provides a service using a licensed product.
- When a company calculates revenue after direct costs.

### Relevant sectors

- Information Technology
- Consulting
- Legal Services

## Relevant contract types

- [Service Agreement](https://www.genieai.co/en-us/template-type/service-agreement)
- [Licensing Agreement](https://www.genieai.co/en-us/template-type/licensing-agreement)
- [Sales Agreement](https://www.genieai.co/en-us/template-type/sales-agreement)

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