It’s no secret that you need to track sales revenue. The four-year failure rate for new businesses is around 44%. And the biggest reason 80% of them fail is lack of cash flow, according to Fundera. Keeping an eye on your sales revenue can help you manage costs and maximize profits.
If your sales revenue drops, it can impact your entire company. You may have to cut payroll and expenses, break partnerships, or — even worse — close down. When more money comes into your business, you can use it to expand or pay down debts.
The problem is that many business owners think their job is to provide a service first. They wear many hats, but they also don’t have an advisory board to help steer them in certain directions. Their role includes providing service, but they also need to manage profit margins and net income.
If you get your sales revenue formula right, you can improve your bottom line and even identify new potential revenue sources.
What is sales revenue?
No matter what industry you operate in, your business has to make money to survive. Sales revenue is the amount of money earned from the sales of your products or services over a period of time. It’s often used to define the size of a business — and an integral part of the net profit calculation formula.
Sales revenue can be shown as “gross sales revenue” or “net sales revenue” in an income statement. These two concepts are explained as follows:
Gross Sales Revenue
This includes the total from income, receipts, billings, etc. that a business earned from the sale of goods and services; nothing has been subtracted from this amount.
Net Sales Revenue
Net sales revenue begins with the net total of all earnings, then is reduced by the cost of returned items, sales/discounts, and allowances given to customers. This figure is an accurate representation of the amount received from clients.
It’s important to know that the sales revenue formula uses figures reported over a standard period of time (i.e. a month or a quarter).
The easiest sales revenue formula for your business
Depending on your business, here are the sales revenue formulas you should use:
If you are operating a business where you sell goods and merchandise, the formula will be:
- Sales Revenue = No. of Units Sold x Average Price per Unit
If your business is service-based, you can calculate the annual sales revenue with:
- Sales Revenue = No. of Customers x Average Price of Services Delivered
An example of sales revenue calculation
Let us consider a tire manufacturer makes 25 million products for various types of vehicles. In the year 2018, the company sold 10 million tires of Variety A at $80 per piece.
They also sold 10 million pieces of Variety B at $125 each, and they retailed 5 million tires of Variety C at $200 each.
What is the total sales revenue for this business?
Applying the goods and merchandise sales formula above:
Sales Revenue = No. of Units Sold x Average Price per Unit
It looks something like this:
Sales Revenue for Variety A: 10,000,000 x $80 = $800,000,000
Sales Revenue for Variety B: 10,000,000 x $125 = $1,250,000,000
Sales Revenue for Variety C: 5,000,000 x $200 = $1,000,000,000
Total sales revenue for the tire manufacturer is $3,975,000,000
Using Google Sheets to calculate your annual sales revenue
If the sums above seem too complicated, you can easily automate them using Excel. Here’s how to calculate revenue in Google Sheets:
Step 1: Enter the item/service name in cell A2. For instance, if you sell laptops, write “Laptops” in the cell.
Step 2: Type the price of this item in cell B2. If the laptop sells for $1,000, type in “$1,000”. If you add the dollar sign, the program automatically formats the cell as currency.
Note, you can change the cell’s currency in Google Sheets. To apply a different currency:
- Highlight the cell you want to format.
- Click Format —> Number —> More Formats.
- Click More currencies.
- Search in the menu text box to choose a summary.
- Click Apply.
Step 3: Next, enter the number of units sold in cell C2 — if you sold 20 laptops, just type “20”.
Step 4: Now, enter “=B2*C2” in cell D2. This cell will show the total revenue earned from the sales of that item.
Then, you’ll have to repeat these steps until you have entered all the items sold in your sheet. For example, the next product goes into A3, its selling price in B3, and the formula “=B3*C3” in D3, and so on.
Once all your products are listed, enter the formula “=SUM(D1:D#)” in column D. Make sure you replace the ‘#’ in the equation with the number of your last entry in the column.
Hit enter and it will automatically calculate and display your total sales revenue for the period.
What does it mean for your business?
Sales revenue is often compared with a net profit to gauge the true profitability of your business. These revenue calculations can be used to boost the production of specific products or increase the sales price per unit, ensuring that the volume is managed correctly for every product.
As part of this, you have to set goals and use the annual sales revenue figures to see if you met, beat, or maybe even fell short of your expectations for the year. It may mean improving your sales pipeline and shortening your sales cycle with a Messenger bot.
It’s equally important to analyze problem areas and track sales to find opportunities for improvement and determine methods for growing your business.
Are you tracking sales revenue the right way?
The sales revenue formula is an excellent way to understand your overall profitability, growth trend and creating goals for the next year. It’s equally important to analyze problem areas and track sales to find opportunities for improvement and determine methods for growing your business.