How to Calculate Sales Revenue?
What is the critical parameter for evaluating a company’s performance?
Total revenue might be the first thing that comes to mind, yet, it often includes irregular or one-time revenue, which can misrepresent the real picture. To ensure you’re getting a clear and consistent overview of the revenue generated by your business, we suggest looking at sales revenue instead.
Sales revenue, or money generated from the products & services sold, is the top-line metric that gives a clear indication of a business’s success and financial health and allows teams to create efficient projections and plans for the future. Keep reading to find out the formula for sales revenue, why it is relevant, and how you can increase it.
What Is Sales Revenue?
Sales revenue refers to the funds a business generates from the sale of goods and services. But what is the difference between ‘sales revenue’ and ‘revenue’?
First, it is important to clarify that despite the similarity, the two terms indicate different metrics. Revenue is the total income generated by a company in a given time frame and includes sales revenue and other income from non-core activities (e.g., dividend payments, interest on current accounts, etc.). The revenue can be gross or net. Gross revenue refers to the amount generated before deductions and does not say much in terms of business profitability. Net revenue, on the other hand, is what is left after any sales discounts, returns of goods, and other bad debt expenses; it ultimately represents the sales revenue that is reported on the income statement.
Why Is Sales Revenue Important?
Aside from indicating the overall health of a business, sales revenue is used for the following purposes:
- Measuring profitability of core business activities.
- Making budget allocation decisions – by looking at the revenue generated by each product category, companies can adjust their investment strategy to maximize efficiency.
- Determine eligibility for loans, government contracts, and funding grants.
- Establish company valuation, based on revenue and market share.
Sales Revenue Formula
The sales revenue formula is simple and straightforward. Essentially, it contains the average price that a customer is willing to pay for a good or service multiplied by the number of units sold by a business. To avoid any ambiguity, we have illustrated the formula below:
If a business’s market offering consists of a single product or service, calculating sales revenue is a pretty simple task. Yet, the complexity of the calculation increments progressively as the service or product line gets extended and it is necessary to calculate the individual sale price of each unit.
What does Sales Revenue Indicate?
Sales revenue is traditionally found at the top of a company’s income statement. All of the following financial performance metrics (e.g., gross & net profit, operating income, etc.) derive from this starting point. Having correctly calculated the sales revenue, a business will be able to determine profitability ratios and get a true and accurate picture of a business’s performance. This calculation also impacts several other items, such as the cost of sales and other administrative costs, all of which constitute a percentage of sales revenue.
Sales revenue is also frequently used in forecasting, as the historical trend of this metric can give a clear direction for the future, helping business owners make informed strategic decisions.
In a nutshell, the income statement, P&L, and other financial forecasting items all pivot around the sales revenue.
How to Increase Your Sales Revenue?
Follow the steps below to bolster your sales revenue:
- Extend your market offering with new or unique products
Differentiating yourself from the competition is important in order to meet customer needs and make a positive impact on your sales revenue.
- Explore new markets
By expanding your geographic reach, you can acquire new customers and increase your sales. If you are not ready to start your own e-commerce platform, you can list your products on Amazon, eBay, or other websites, making them available to regional or international users (or both).
- Boost your marketing efforts
Whether you’re selling your goods locally or internationally, online or in a physical store, marketing is king when it comes to establishing a strong presence on the market and building a relationship with your target audience.
- Leverage partnerships
Take advantage of partnering with local distributors who know the market and the target customer better. You can use their networks to enter new markets and establish a presence seamlessly, capitalizing on existing knowledge and experience.
- Use a reliable business account
An advanced digital business account can help you streamline corporate financial management with various helpful tools. Whether it is sending international transfers to your partners, receiving multi-currency payments from your customers, distributing payroll, or managing accounting processes – a good business account will make life easier for you.
How Often Is Sales Revenue Calculated?
Sales revenue is usually calculated quarterly and/or annually, depending on your company type, structure, and accounting procedures. As mentioned prior, any time you need to create an income statement, calculating sales revenue is part of that. Most likely, the accountant, accounting software, and company leaders invested in company performance will be actively involved in this process.
It is also possible to calculate sales revenue for each individual revenue stream to gain more insight into how each stream contributes to the success of the business.
Manage Your Sales Revenue Better with Satchel
Satchel is a leading European EMI, with HQ in Lithuania, performing international money transfers, fintech consulting, currency exchange, BaaS, SaaS, and card services since 2018.
With Satchel, you can open a business account remotely, providing only basic company documentation. All of our accounts come equipped with numerous features, including IBANs for international transfers, Mastercard payment cards for your business needs, and an intuitive mobile app for seamless account management. No matter where you are located, what currencies you use, or how often you transact, Satchel will offer you a solution tailored to your needs that will help you boost your sales revenue. Here are some benefits:
- Remote account opening
- 36+ currencies supported
- Unique SEPA IBAN
- Currency exchange at the best rates
- Mobile and web client office
- SEPA & SWIFT payments supported
- Virtual and physical Mastercard cards tailored to your needs
- A range of API integrations
- Smart security features
- Personalized customer support