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Learn how to calculate sales revenue, different considerations, and how to apply sales revenue formula.
Sales Revenue is one of the most commonly cited business metrics. So much so that it’s often used as the basis for calculating a business’ valuation. It’s also useful in benchmarking growth, forecasting and setting revenue targets, and making long-term strategy decisions.
For that reason and others, Sales Revenue is a metric that every leader in the company—from the C suite on down—should be well-acquainted with.
Sales Revenue refers to the portion of total revenue that’s generated from sales of the company’s products and/or services. In other words, it measures the revenue brought in via the company’s primary business activities.
A top line metric, you’ll often find Sales Revenue at the top of the Income (or Profit & Loss) Statement, listed as “Sales,” “Revenue,” or “Sales Revenue.”
Since total revenue numbers can include irregular and one-time revenue generation, they can obscure the true picture of company performance. That’s where Sales Revenue comes in—providing a clearer and more consistent view of revenue generation.
“Sales revenue is vital to any business,” Ethan Taub, CEO at Goalry and Loanry, said. “In our B2B sales we track all metrics meticulously as this data gives us info on the state of the business at any one time, allows us to check if we are on budget and to plan for the future depending on where we stand currently.”
“For me, [sales revenue] answers a very basic question: ‘Is my business doing well?’” Dave Nilsson—founder and Director at ConvertedClick—told us. “High revenue means more profit and vice versa. Sales revenue helps me gauge the growth of my company. If we constantly generate good revenue it means we have a bright future ahead.”
Let’s look at a few examples of Sales Revenue and how it differs from Total Revenue.
Here’s one: A software company generates revenue every quarter by selling three different kinds of software, along with implementation services. In a typical quarter, they earn $300,000 in revenue.
Last quarter, they sold off one of the three software products for $1 million. Their Total Revenue for the quarter was $1.3 million, but that doesn’t tell the real story of their revenue. Their Sales Revenue for the quarter, however, is still $300,000—that’s how much revenue they generated from their core business. The Sales Revenue number is much more indicative of future revenue forecasts.
Parker Russell—owner, CEO, and CFO at Black Ink Coffee—shared another example:
“Sales Revenue is the cost of the product multiplied by selling price. So if I sold ten 5-lb sacks of Brazillian Coffee Bean at $67.49 a pack, then my sales revenue for that product would be $674.90. Sales Revenue is the number before reductions are made, before COGS are calculated out of the equation, and other expenditures.”
“This top line number is important to understand the net profit,” Parker added. “Based on your final number you will be able to know if you should raise your price, or offer promotions!”
Sales Revenue is vital because of its comparability—it’s the top line metric businesses can benchmark past and future performance against and use in forecasting, planning, and strategy going forward.
“Sales revenue is essential to know because it comprises a huge part of the company's total revenue,” said Charles McMillan, founder at Stand With Main Street.
“Sales revenue is the key performance indicator used to make business decisions including operating expenses, pricing strategy, and growth plans,” Amanda Oliveri, VP of Client Strategy at TechnologyAdvice, told us.
As a sales leader, you may not be keen on doing all the math yourself. Luckily, Sales Revenue is listed in nearly every Income Statement, so you can simply find it there instead of calculating it.
Sales Revenue is listed at the top of the Income Statement in the Revenue portion. It’s typically broken out from Total Revenue and may be broken down into revenue streams, as well (more on those in the next section).
Here’s a sample of where to find Sales Revenue on your company’s Income Statement:
Sales Revenue can be calculated for any given period of time. That said, it’s most often calculated on a quarterly and/or annual basis.
As we mentioned above, any time you or a team member draw up an Income Statement, Sales Revenue calculation is part of that. As such, it can be calculated by your accountant, most accounting software solutions, or by leaders across the company who want to gauge performance.
Notably, Sales Revenue includes all revenue streams your business regularly generates revenue from, including:
Sales Revenue can also be calculated individually for each revenue stream, to give leaders a view into how each stream contributes to overall revenue generation for the company.
The Sales Revenue formula your business uses will depend on your core business. For product-based businesses, the formula considerations include:
And the formula looks like this:
Sales Revenue = Number of units sold x Average price per unit
So if we say, for example, a D2C mattress business sells 400 mattresses per quarter for an average selling pricing of $800. Their Sales Revenue is calculated as:
For service-based businesses, considerations include:
And the formula is:
Sales Revenue = Number of customers x Average price of services
So, for a business consultancy serving 15 clients at an average rate of $8,000 per quarter, the calculation looks like this:
Some of the chief uses of the Sales Revenue metric include gauging revenue performance over prior periods and forecasting future revenue. That’s because Sales Revenue offers a concrete benchmark for revenue generation via your company’s primary business activities.
“Sales Revenue is essential for a B2B business to know, as it is the most important indicator of potential profitability and understanding the viability of a company's product,” Devin Schumacher, owner and GM of SERP, said.
“For me, Sales Revenue is the most effective metric for historical analysis and forecasting,” Shiv Gupta—CEO at Incrementors—added. “By using this, it becomes easy to track the growth of productivity.”
Is revenue the same as sales? The short answer is: Yes. Sales and revenue are largely considered the same metric.
By and large, the terms “sales,” “revenue,” and “sales revenue” are all used interchangeably. You may see this metric listed under any of those labels on your Income Statement, for example.
Typically, Sales Revenue is reported as a gross number—meaning it hasn’t had any adjustments taken into account. Net Revenue, on the other hand, subtracts the Cost of Sales (or Cost of Goods Sold, depending on the business) from Sales Revenue. That ensures things like discounts, returns, and allowances are filtered out from true revenue.
Notably, Sales Revenue includes all money earned by a business during a given period—regardless of whether or not that money is actually received by the company. That’s one of the biggest differences between Sales Revenue and Cash Flow, which includes only the cash that flows into a business’ accounts.
Sales Revenue is not the same as Gross Profit. The two differ largely based on the considerations each takes into account. Gross Profit lives in the middle of the Income Statement, involving deductions (unlike Sales Revenue) for direct costs like the Cost of Goods Sold.
“Calculating your sales revenue will give you insight into your business’ ability to make money, as well as provide a starting point for calculating profitability (two very important metrics to consider when trying to improve, grow or even just sustain your business),” Teri Shem, cofounder at Conex Boxes, said.
Sales Revenue is the starting point for nearly all the metrics that follow it in the Income Statement—Net Income (also called profit) is no exception. To calculate it, you start with Sales Revenue and subtract all costs and expenses.
Similarly, Sales Revenue is a vital component of Profit Margin. To calculate Profit Margin, you’d start with Sales Revenue and calculate gross profit by subtracting direct costs. Then you divide that number by the original Sales Revenue number to get your margin.
The portion of revenue generated from sales via retail outlets (like stores). For example, an ecommerce brand may partner with a brick-and-mortar retailer to sell products in their stores. Revenue from the physical store would be reported as retail sales revenue.
The portion of sales revenue paid directly from the customer to you. This is contrasted with indirect sales revenue, which is paid from a customer to a third-party (a software reseller, for example) to you.
The portion of sales revenue generated via the internet. Used, for example, by brands that have both brick-and-mortar locations and digital sales.
Used by many software companies (including SaaS), this is the portion of revenue generated from recurring subscription payments.
For companies that sell advertisements (in addition to other products or services), this represents revenue generated from those ads alone.
Once you understand and calculate Sales Revenue, many sales leaders shift into growth mode—how can you increase that number? There are a lot of methods for growing Sales Revenue, including:
A good CRM software can be your best ally in increasing Sales Revenue by helping you visualize deals and pipeline to identify deals to focus on that will make or break your quarter and review stuck deals to find deals in trouble. A CRM platform can even use AI to help you identify early-stage deals that are most likely to close and suggest next-stage actions.
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