Sales revenue is the amount realized by a business from the sale of goods or services. This figure is used to define the size of a business. The concept can be broken down into two variations, which are:
- Gross sales revenue. Includes all receipts and billings from the sale of goods or services; does not include any subtractions for sales returns and allowances.
- Net sales revenue. Subtracts sales returns and allowances from the gross sales revenue figure. This variation better represents the amount of cash that a business receives from its customers.
How is Sales Revenue Calculated?
The sales revenue calculation is very simple. It is the number of a product sold multiplied by the sales amount of that item:
Sales Revenue = Units Sold X Sales Price
Let’s say you are selling sets of pots and pans. Your pots and pans are special, they have many features that competitors don’t offer and have more pieces than typically are found in pots and pans sets. Because you have exceptional products, you are able to charge a premium price for your sets. Last year you sold 500 sets of pots and pans for $350 each.
In this example, your sales revenue is found by the following formula:
Sales Revenue = 500 * $350 = $175,000
If your sales drop this year to only 400 units, there will be a negative effect on your sales revenue:
Sales Revenue= 400 * $ 350 = 140,000
Sales revenue is typically reported for a standard period of time, such as a month, quarter, or year, though other non-standard intervals can be used.
The key figure against which sales revenue is compared is net profits, so that the analyst can see the percentage of sales revenue that is being converted into profits. This net profit percentage is usually tracked on a trend line, to see if there are any material changes in performance.
Investors also like to track sales revenue on a trend line, and especially the percentage rate of growth, to see if there is any evidence of changes in the growth rate. A declining growth rate may trigger a sell-off among shareholders.
