How to Calculate Revenue? Sales Revenue Formula
There can be several different ways to look at revenue within your accounting processes. Some different metrics are going to provide value to different business owners. Profit margins, of course, are one of the biggest metrics for you to measure and monitor.
But understanding how to calculate revenue is just as important for you to know. Basically, revenue is the total amount of money that your business gets from selling your products or services to customers. Revenue is usually included on the first line of your income statement.
And it can get labelled as either revenue, net sales, sales or net revenue. This line item on your income statement can be one of the biggest factors in determining the financial health of your business. It can break down and show insights into how much money you’re actually
bringing in from the sales you’re making.
Let’s take a closer look at how to calculate revenue, including using the sales revenue formula.
Here’s What We’ll Cover:
What Is Revenue?
Revenue is the gross income that your business produces from selling your products or services. It can also get referred to as sales revenue, and it can be simple to figure out what your revenue is. That said, not all types of revenue are going to be equal.
Understanding these differences is critical to keeping your accounting and reporting processes accurate.
What Is Total Revenue?
Where does most of your business come from? Is it from selling one individual product or service? What about investments that your business has made? Are you generating any revenue from your marketing and advertising strategy?
Total revenue is any income that’s generated from the total sales you make, regardless of the main revenue source. So, any revenue generated from sales, investments, marketing or customer success gets included. Total revenue is always going to be higher compared to sales revenue since it’s the total of your revenue-generating channels.
How to Calculate Total Revenue
Understanding how to calculate total revenue can be important for your business. It will give you insights and a high level of understanding when it comes to the relationship between your customer and your pricing.
The good news? Calculating total revenue is easy. Just use the following formula:
Total Revenue = Price x Quantity Sold
Net Revenue Vs Gross Revenue
When you’re calculating revenue, there are going to be a few different types of revenue to be aware of. This can be crucial for your accounting processes, especially when it comes to gross revenue and net revenue. There can be some misconceptions about net and gross revenue, which might affect your income tax if not done correctly.
This is all the income generated by your business through sales, without considering any expenditures. For example, let’s say your biggest sales come from the sale of footwear. If you recently sold the latest trendy trainer for £100, your gross revenue would be £100.
This is when you subtract the cost of goods sold from your gross revenue. There might be extra production fees, shipping costs or storage costs. Plus, you might even offer discounts, allowances or returns that can contribute to net revenue. For example, if that trendy trainer cost you £25 to create your net revenue would be £75.
What Is Sales Revenue?
Your sales revenue is generated solely from the total sales of your goods and services. It doesn’t take into account any income generated by other revenue streams. So it’s important to keep in mind that sales revenue only considers sales.
That said, sales is part of your total revenue. But, while all sales are revenue, not all revenue are sales.
How to Calculate Sales Revenue
It can be a simple process for you to calculate sales revenue. It takes into account the number of units sold and the average price of those units. If you’re a service-based business, you calculate sales revenue by multiplying the total number of units sold by the average sale price.
However, if you’re a product-based business, the formula for calculating sales revenue would look like the following.
Number of Units Sold x Average Price of Unit = Sales Revenue
For example, the trainers that you recently started selling have been flying off the shelf. Taking a look at some past data allows you to figure out your sales revenue. If you wanted to find the sales revenue for the previous month you just need to find the number of units sold and how much you sold them for.
So, if you sold 200 pairs of trainers last month at £100 each, your sales revenue would look like this:
200 pairs of trainers x £100 each = £20,000 in sales revenue
What Can You Do With All Your Revenue Data?
Being sure to calculate your revenues properly can ensure your business stays profitable in the future. An error or mistake in your calculations can make a huge difference in your accounting and bookkeeping processes. Accurately calculating revenue can give you insights into new opportunities for your business.
You can better plan for operating expenses for both immediate and future expenses. This could include things like total inventory, employee wages or salaries or paying vendors and suppliers. You’re also able to determine and plan for growth strategies.
Implementing historical revenue data can help you guide your business into the future on the path you want it to go. Plus, you can get a better sense as to how much you can invest into research and development. Or, how much you can invest in upgrading things like property or equipment.
One of the biggest things that you can do with all your revenue data is update and maximize your pricing strategy. Looking at and analyzing your revenue can help you recognize if you’re charging too much or too little for your product or service. You can see if you are generating enough profit compared to the expenses you incur.
Understanding revenue is important for almost every aspect of your business. It’s critical when you’re analyzing gross margin or financial ratios. This provides a better sense as to how much profit your business makes after the initial costs get removed. But, this gets done before accounting for your expenses.
The entire process of determining the revenue of your business is fairly simple and straightforward. Which is good news. So, knowing how to calculate revenue can provide you with some advantages.
Revenue gets included on your income statement, and it’s usually on the first line. It can sometimes get labelled as net sales or net revenue. And this line item on your income statement is one of the biggest factors in understanding your business’s financial health.
It’s also worth noting again the difference between total revenue and sales revenue. Total revenue considers everything that’s income. This includes any revenue generated from sales, investments or marketing efforts. Sales revenue, on the other hand, only considers revenue generated from actual sales.
To calculate sales revenue, use the following formula:
Number of Units Sold x Average Price of Unit = Sales Revenue
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