Understanding Sales Revenue Formula
Understanding sales revenue requires you to understand your business type or industry and generate sales; this is the start for every growing business.
For every business to succeed, you must make profits; profits are made only if the total revenue is greater than the total cost of producing and selling a commodity.
Revenue is crucial for your business; therefore, it's worth being understood perfectly and with all the aspects around it, including the different revenue types, keeping records and what you have to do with the revenue earned.
The most important and crucial thing for every business is to generate sales revenue, not simply providing services or goods; however, the more goods and services you provide/ sell out, the more sales you make and the more revenue generated in return.
As a business owner, you must make sure that your sales don’t go down; once sales go down, it implies that the sales revenue will also go down, which is not healthy for your business's survival.
Sales revenue refers to the amount of money realized by a business from the sale of goods or services. Alternatively, sales revenue refers to the amount of money that is brought into the business from the sale of products and/or services over a period of time.
Revenue is usually reported monthly, quarterly or annually. It indicates whether a company has profited or lost money over that time period. Keeping an eye on your sales revenue can help you manage, reduce costs and maximize profits.
Sales look at the number of goods sold out of the business, while revenue is earned from the sold products.
Sales revenue entails and price of a commodity and the quantity.
Price is therefore defined as the monetary value of a commodity. The unit cost/price of a commodity is attained by dividing the total cost by the quantity produced. On the other hand, quantity refers to the amount or number of items or commodities.
Sales Revenue = Price x Quantity
Mathematically it’s expressed as:
Sales Revenue = Price x Quantity
Hoping that we fully understood what sales revenue is, let us handle calculating the sales revenue.
To calculate the sales revenue, the number of products sold multiplied by the sales amount of that item. It is a process of three steps that include;
· Determining the unit price
· Calculating the total units sold.
· Multiply the price by units.
For product-based companies (goods), the formula is; Sales Revenue = Units Sold x Sales Price
For service-based companies (services), the formula is; Revenue = Number of Customers x Average Price of Services.
Assuming MonkeyPesa sells computers, in March, they sold out 100 computers at 1,000,000. If we are to calculate the sales revenue, we get the product units sold out multiplied by the price per product. 100 x 1,000,000 = 100,000,000
Considering services, the number of customers x cost per service= sales revenue.
There are different types of revenue, and these include; Net revenue and Gross revenue
Gross revenue refers to all income earned from a sale with expenses included. Expenses could be; production, shipping, storage, allowances, salaries, electricity, and so many more.
Net revenue subtracts expenses from gross revenue. Net revenue basically refers to clean money or net profits.
There are also other types of revenue, and these include;
Recognized revenue is recorded as soon as the business transaction is conducted. Once the sale has been completed, you record it there and then in your revenue records.
Deferred revenue refers to money earned in advance of earning. This money is earned from the payment of goods and services that are delivered in the future.
In conclusion, therefore, the sales revenue formula is generated when you multiply the price of the goods/services by the number of goods/quantity sold out or by the number of customers who bought.