When tallying up your business expenses and profits, you must calculate your sales revenue to see how much you’ve earned. Your sales revenue will impact the rest of your operations, so having accurate figures is crucial.
The definition of sales revenue is: “income generated from selling goods or services.” The sales revenue definition is simple, but your company may need assistance if you have never calculated it before.
This page covers the sales revenue definition, formula, and examples so that you can easily calculate and understand your company’s revenue. We break down the following topics:
- What is sales revenue?
- Why should you calculate sales revenue?
- How to calculate sales revenue (sales revenue formula)
- Sales revenue examples
Keep reading to learn how to calculate sales revenue and what the number means for your business!
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Sales revenue 101
We’ll cover the basics of sales revenue before calculating some examples.
What is sales revenue?
Sales revenue is a company’s income generated from vending goods or services. Companies record their sales revenue every set period, such as every month, quarter, or year, depending on your operation and goals.
The definition of sales revenue includes two types:
- Gross revenue: The total number of sales without including discounts, refunds, or returns.
- Net revenue: The final amount of cash generated after discounts and refunds.
Each type of sales revenue represents a different figure. Your gross revenue shows how many goods or services you sold and how your team is performing, while your net revenue is how much money you generated.
While discounts and promotions may seem harmful to your profit, they can be a great way to convert leads and appease existing customers. If you encourage people to buy with a small discount, they will be more likely to purchase again.
Revenue vs. sales
Sales and revenue are not interchangeable terms. Each figure represents a different sum on your tax forms and business operations.
Sales revenue comprises all funds generated from sales, whether products or services. Any money coming in outside of selling goods is known as nonoperating income.
Your operating activities and nonoperating activities will be outlined in your income report. Here is an example breakdown from Apple:
All sales are revenue, but not all revenue comes from sales. If you have other income sources, it’s crucial to keep them separate to reflect your company’s performance accurately.
Revenue vs. profit
Another important distinction is the difference between revenue and profit. As discussed, revenue is the total amount of money generated from all sources. Profit is the sum generated after deducting operating costs and expenses.
For your business to operate, you must generate some profit. While your revenue can show you have much money you are bringing in, your net profit can point to any discrepancies in your operation.
For example, if you aren’t generating enough sales to secure a profit, you might need to adjust your sales approach or try another channel.
Why should you calculate sales revenue?
Sales revenue is the first number on your income statement and the basis for net income. Your net income accounts for all assets (including depreciation) and earnings after taxes, and it speaks to your business’s health and future potential.
Understanding your sales revenue — and larger finances — can help you:
- Evaluate your sales process: If you aren’t earning as much from sales as expected, you can look at your sales process. Where are your sales falling through? What issues do customers have? How can you close more sales?
- See where your money comes from: Some companies may have different revenue-driving operations. By calculating sales revenue, you can see what percent comes from sales versus investments and other processes.
- Focus on profitability: Calculating your sales revenue will help you accurately measure your business’s profit and earnings from year to year. Sales revenue is a crucial metric if you need to showcase your sales earnings to stakeholders or plan for growth.
Minding your sales revenue will help you strengthen your core business and give attention to areas of improvement. Whether your sales are driving your income or falling short, you won’t have a full picture without calculating sales revenue.
Bonus Read: What is Revenue Run Rate?
How to calculate sales revenue (sales revenue formula)
There are two different sales formulas — one for products and one for services.
The sales revenue formula (for products) is:
Number of units sold x Price per unit = Sales revenue
The sales revenue for services is:
Number of customers x Average price per service = Sales revenue
If you offer products and services, you should calculate your revenue for each. Each will have their own figure on your income report:
Sales revenue examples
Let’s work through some sales revenue examples to see how you might calculate yours.
For product revenue, let’s say that you own a custom t-shirt company. At the end of a successful month, you sold:
- 300 short sleeve t-shirts at $20 a piece
- 50 long-sleeve t-shirts at $30 a piece
- 75 custom sweatshirts at $60 a piece
To calculate how much you made with each product type, you would do the following math:
- 300 x $20 = $6000
- 50 x $30 = $1500
- 75 x $60 = $4500
Add those values together to get your total sales revenue:
- $6000 + $1500 + $4500 = $12,000
After one month, your total sales revenue would be $12,000.
For service revenue, say you own a carpet cleaning company specializing in commercial buildings. At the end of the month, you had about 130 clients with an average price of $1200 a service.
Here’s how you would calculate the service revenue:
- 130 clients x $1200/service = $156,000
Now that you understand sales revenue, you can start calculating your own!
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