Sales Revenue: How Is It Applied in Business?

All marketing efforts and business strategies ultimately aim to generate sales revenue.

In this article, Sahabat Labamu will be guided through a deeper understanding of this concept—from what sales revenue is, how to calculate it, to understanding its benefits for your business.

Let’s dive into the full breakdown below!

What Is Sales Revenue?

According to an explanation on Zendesk's website, sales revenue is the income a business earns from selling goods or services. This revenue is recorded in the income statement once the product has been delivered or the service has been fulfilled.

Sales revenue is also one of the most commonly cited financial metrics. It serves as a foundation for calculating company valuation and KPIs, forecasting, and making strategic business decisions.

Components of Sales Revenue

There are two main components in sales revenue:

• Gross Sales Revenue — This includes the total amount of money a company receives from selling its products or services, without any deductions.

• Net Sales Revenue — This is the total amount received after deducting returns, production costs, and other related expenses from the gross sales revenue.

  
  

While gross sales revenue can illustrate how well a business is selling its products, it doesn't reflect the profit margin. On the other hand, net sales revenue provides a clearer picture of how much money the company is actually generating from its sales activities.

What Is the Difference Between Revenue and Sales Revenue?

Because the terms sound similar, they are often used interchangeably—even though they actually refer to different things!

• Revenue includes all income generated by a company, whether it comes from core business operations (sales) or other sources such as interest, dividends, rental income, gains from asset sales, and more.

• Sales revenue, as the name suggests, refers only to income earned from selling products or services.

  
  

So, even though sales are considered a revenue stream for a company, not all revenue comes from sales.

In other words, sales revenue is also referred to as operating revenue, while income earned from activities unrelated to sales is called non-operating revenue.

While it's true that non-operating revenue offers a more complete picture of a company's income streams, it can sometimes create unnecessary “noise.” For example, this might happen when management is trying to evaluate the success of a new product.

How to Calculate Sales Revenue

The calculation of sales revenue can be done using a simple formula. Here's how to calculate it for both product-based and service-based companies:

1. Product-Based Companies

Product-based companies can calculate their sales revenue by multiplying the number of units sold by the average price per unit:

2. Service-Based Companies

Service-based companies can also calculate their sales revenue by multiplying the number of customers by the average price of the service provided:

Examples and Applications of Sales Revenue Calculation in Business

Mrs. Untung runs a business that sells organic soap and shampoo. In October, she sold 1,000 pieces of soap at Rp 25,000 each and 500 bottles of shampoo at Rp 50,000 each. To calculate her sales revenue, you can do the following:

Sales Revenue = (1.000 x Rp 25.000,00) + (500 x Rp 50.000)

= Rp 50.000.000,00

Then, in November, the sales consisted of 1,200 bars of soap and 100 bottles of shampoo. Therefore, the sales revenue for November is:

4o

Sales Revenue = (1.200 x Rp 25.000,00) + (100 x Rp 50.000)

= Rp 35.000.000,00 

Seeing the significant drop in sales revenue, Mrs. Untung decided to collaborate with influencers to boost sales. And sure enough, in December, soap and shampoo sales rose sharply to 3,000 bars and 1,500 bottles, respectively. Therefore, the sales revenue for this month is:

Sales Revenue = (3.000 x Rp 25.000,00) + (1.500 x Rp 50.000)

= Rp 150.000.000,00 

In summary, the total sales revenue from Mrs. Untung's organic soap and shampoo business during Q4 amounted to Rp 235,000,000. With this data, she can assess how profitable her business is while formulating strategies to boost sales—whether by increasing the selling price, improving marketing efforts, or expanding her sales reach.

The Importance of Calculating Sales Revenue

Using the illustration above, you can see that calculating sales revenue provides important benefits for a business. In addition to those already mentioned, here are other reasons why it’s essential to track it.

1. Measuring Profitability

Calculating sales revenue shows how well a business's products are selling. By comparing production costs with the value of product sales, you gain a fundamental understanding of the company’s return rate or profit margin.

2. Making Forecasts

Sales revenue over time is also extremely useful for making accurate predictions and setting realistic financial goals for the future.

3. Measuring the Effectiveness of Resource Allocation

By understanding your sales revenue, you can also evaluate whether your business spending is reasonable and aligned with your goals. This is especially crucial if you're planning to expand into new markets or invest in research and development.

4. Assessing Loan Eligibility

Lenders always review a company’s financial statements before approving a loan. One of the first things they look at is sales revenue. Typically, they are more likely to approve loan applications from businesses with consistently growing sales revenue.

5. Determining Valuation

Sales revenue growth can also serve as a key indicator of how valuable a business is. High or consistently growing sales revenue signals to investors that the business is profitable and has strong market potential.

Also Read: Sales Data – Definition, Types, and Its Benefits for Business

So, that’s the basic information you need to understand about sales revenue. Fortunately, if you’re already using the Labamu app to manage your business, you don’t have to calculate everything manually.

The app records all transactions and provides the sales data you need to evaluate your business performance.Go ahead and download the app now from Google Play or the App Store!