What is sales revenue? How to calculate it with formula
Knowing how to calculate sales revenue is crucial to understanding almost every aspect of your business — from analysing gross profit or financial ratios to determining growth strategies and optimising revenue management.
In this guide, you'll learn how to calculate sales revenue, what it looks like on various financial statements, and how to use it to gauge the health of your business.
What is sales revenue?
Sales revenue is all the income your business generates exclusively from the sales of goods and services. It doesn’t include income from other revenue streams — for example, interest on cash savings.
A subset of total revenue, sales revenue is the first line item on your income statement. When you sell a product or service, you record the sales revenue in the month of delivery or fulfilment.
For example, if you're a mechanic, and a customer calls in June to book a car service in July, the revenue from the sale gets recorded in July when you provide the service, under the accrual accounting principle.
There are two primary components of sales revenue:
Gross sales revenue
Gross sales revenue is the total amount your business receives from selling products or services. For example, if you sell a pair of shoes for $100, the gross revenue is $100.
This figure indicates how well your products or services sell but not the profit margin.
Net sales revenue
Net sales revenue is gross sales revenue minus returns, discounts and the cost of goods sold (COGS). So, if the pair of shoes you sold for $100 cost $25 to make, and the customer received a $10 discount, then the net sales revenue on that pair of shoes is $65.
This figure provides more detail and is, therefore, more valuable when assessing the profitability of a product or service.
Why is sales revenue important?
Sales revenue is important because of the influence it has on business analysis and forecasting.
When you accurately calculate sales revenue, you can:
Measure profitability
To measure profitability, you need sales revenue. It can help you identify which of your products or services are performing well and which ones aren't.
Sales revenue is also essential when calculating gross and net profit margins — in other words, if you're generating enough profit to cover your expenses.
Plan business growth
Planning business growth is possible with insight into your sales revenue. You can better prepare for operating expenses, now and in the future, and produce accurate sales forecasts.
Assess product pricing strategies
Assessing product pricing strategies relies on precise revenue data.
By analysing your sales revenue, you can determine whether you're charging too much or too little and whether adjusting specific price levers will improve the profitability of your business.
What does sales revenue include?
Sales revenue includes all sales of your products and services and provides a clear picture of the profit you've made from what you sell.
On the other hand, sales revenue doesn't include the cost of goods sold (COGS) or income generated from other revenue sources.
Key differences between sales revenue and revenue
The terms sales revenue and revenue are often used interchangeably, but there are some key differences.
Sales revenue
Sales revenue is the income that comes from the sale of products and services.
Revenue
Revenue includes sales revenue and all non-operating income — revenue your business generates from other sources that aren't directly related to your core business offerings.
How to calculate sales revenue
How you calculate sales revenue will depend on whether you're a product or service-based business.
Calculate units sold
First, calculate units sold for the period you want to calculate sales revenue for.
Units sold may be tangible products like kitchen appliances, or a service like laptop repairs.
Find unit price
Finding the unit price is the next step. You'll need to determine the average price for the units sold if you sell multiple products or different services.
Multiply unit price by units sold
Lastly, multiply the unit price by the units sold. This calculation will give you sales revenue.
If you're a product-based business, the formula to calculate product sales revenue is:
Revenue = Number of units sold x average price
If you're a service-based business, the formula to calculate service sales revenue is:
Revenue = Number of customers x average price of services
Example of sales revenue formula
Here's an example of the sales revenue formula in action for a service business:
You're a plumber, and in March, you completed and got paid for your services by five customers. Each job varied in price:
Installation of new plumbing fixtures – $1500
Emergency plumbing callout – $1250
Unclogging a blocked drain - $750
Repair and maintenance services for a small commercial building - $3500
Fixing a leaky vanity pipe - $350
The formula to calculate sales revenue is the number of customers (sales) multiplied by the average price of services.
Average price of services = $1.470
Sales revenue = 5 x (average: $1,470) = $7,350
Your sales revenue for March is $7,350.
Here's another example for a product-based business:
You're an e-commerce retailer that sells activewear, and you'd like to know the sales revenue for a particular line of leggings in the previous month.
You sold 250 pairs of leggings last month at $89.95 each. This is what your sales revenue would look like:
Number of units sold (250) x average price (89.95) = sales revenue of $22,487.50
Sales revenue and the income statement
Sales revenue and the income statement are closely correlated — sales revenue is usually the first line on the financial report. It provides a baseline for other financial metrics below it.
Forecasting income statement
Income statement forecasting uses sales revenue to predict other line items like gross profit, operating income, depreciation and amortisation.
Calculating net income
Sales revenue provides a starting point for calculating net income — an essential metric for gauging the health of your business and for financial forecasting. Subtracting all expenses from all revenue gives you net income.
To calculate net income, you can use the following formula:
Net income = Total revenue - Total expenses
You need to subtract the total expenses (including cost of goods sold, operating expenses, interest, taxes and other expenses) from the total revenue earned during a specific period.
Net income shows a company’s profit after all operating and non-operating costs have been deducted from total revenues.
With net income, you can work out other business-critical financial ratios and reports — for example, profitability ratios and earnings per share — that are useful for gauging whether your business is financially viable now and in the future.
Sales revenue FAQs
How is sales revenue recorded?
For accounting purposes, you record sales revenue on your income statement. You can calculate sales revenue for individual income streams.
However, you report the revenue in the month that product delivery or service fulfilment occurs under the accrual accounting method.
This will give you a birds-eye view of how each product or service contributes to your business's overall revenue.
What is sales revenue on a balance sheet?
Sales revenue on a balance sheet relates to your assets — sales generate revenue, and revenue increases assets. The balance sheet shows your business's overall financial position at a specific point.
What type of account is sales revenue?
There are five types of accounts in double entry accounting. Sales revenue comes under the revenue account. The other accounts are assets, liabilities, equity and expenses.
What is the difference between sales revenue and net sales?
The difference between sales revenue (or gross sales revenue) and net sales relates to deductions.
Sales revenue is the total value of your sales before deductions. Net sales revenue is after deductions have been subtracted.
Each of these metrics is calculated differently, with sales revenue being calculated first. Sales revenue is the income generated from your core business offerings — you multiply the number of units sold by the average price of the product or service.
Net sales (or net sales revenue) is gross sales revenue minus returns, discounts and the cost of goods sold (COGS).
Track sales revenue, make better business decisions
Calculating accurate sales revenue is critical — it's the foundation of making informed decisions and setting your business up for long-term financial success.
MYOB Business provides small businesses with easy-to-understand reporting, including sales reports, so you can keep up with what you've sold and when.
Track your income with MYOB Business to see what your business needs. Get started today.
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