All marketing efforts and business strategies ultimately aim for sales revenue. In this article, Labamu Friends will explore this topic in depth, from what sales revenue is, how to calculate it, to understanding its benefits. Let’s read on for the full explanation!
What is Sales Revenue?
According to Zendesk, sales revenue is the income a business generates from the sale of goods or services. This revenue is recognized in the income statement when the product has been shipped or the service has been completed.
Sales revenue is also one of the most widely cited financial metrics. It serves as the basis for calculating company valuations and KPIs, forecasting, and even strategic decision-making.
Sales Revenue Component
There are two main components in sales revenue, namely:
- Gross sales revenue—includes the total money a company receives from selling products or services.
- Net sales revenue—includes the total money received by the company after subtracting gross sales revenue from sales returns, production costs, and other costs.
While gross sales revenue can illustrate how well a business sells its products, it doesn’t reflect profit margins. Meanwhile, net sales revenue provides a clearer picture of how much money a company actually generates from sales activities.
What is the Difference Between Revenue and Sales Revenue?
Because the terminology is similar, the two terms are often confused with each other. But they’re actually quite different!
- Revenue includes all income generated by a company, whether from its core business (sales) or from other sources, such as interest, dividends, asset rental income, gains from asset sales, and so on.
- Sales revenue, as the name suggests, is income generated solely from the sale of products or services.
So, even though sales are considered a revenue stream for a company, not all of a company’s revenue comes from sales.
In other words, sales revenue is also known as operating revenue. Meanwhile, income earned from activities unrelated to sales is called non-operating revenue.
While it’s true that non-operating revenue provides a more complete picture of a company’s revenue stream, it can potentially create unnecessary noise, such as when management wants to evaluate the success of a new product.
How to Calculate Sales Revenue
Calculating sales revenue can be done with a simple equation. Here’s how to calculate it for product-based and service-based companies.
1. Product-Based Companies
Product-based companies can calculate sales revenue by multiplying the number of units sold by the average price:
Sales Revenue = Number of units sold x Average price
2. Service-Based Companies
Service-based companies can also calculate sales revenue by multiplying the number of customers by the average price of services provided:
Sales Revenue = Number of customers x Average price of services provided
Examples and Applications of Sales Revenue Calculations in Business
Mrs. Untung runs a business selling organic soap and shampoo. In October, Mrs. Untung sold 1,000 pieces of soap for Rp 25,000.00 and 500 bottles of shampoo for Rp 50,000.00. To determine her sales revenue, you can calculate the following:
Sales Revenue = (1,000 x IDR 25,000.00) + (500 x IDR 50,000)
= IDR 50.000.000,00
Then, in November, sales reached 1,200 soaps and 100 bottles of shampoo. Therefore, November’s sales revenue was:
Sales Revenue = (1,200 x IDR 25,000.00) + (100 x IDR 50,000)
= IDR 35.000.000,00
Seeing a significant decline in sales revenue, Mrs. Untung took the initiative to use influencers to boost sales. And sure enough, in December, soap and shampoo sales increased rapidly, reaching 3,000 units and 1,500 bottles, respectively. Therefore, sales revenue for the month was:
Sales Revenue = (3,000 x IDR 25,000.00) + (1,500 x IDR 50,000)
= IDR 150.000.000,00
Summarizing, the total sales revenue from Mrs. Untung’s organic soap and shampoo during Q4 was IDR 235,000,000.00. Armed with this data, Mrs. Untung can gauge the profitability of her business and formulate strategies to increase sales, whether by raising prices, improving marketing efforts, or expanding her sales area.
The Importance of Calculating Sales Revenue
Using the illustration above, you now understand that calculating sales revenue offers significant benefits for a business. Beyond those already mentioned, here are other reasons why you should calculate it.
1. Mengukur Keuntungan
Calculating sales revenue tells a business how well its products are selling. Comparing production costs to product sales value gives you a fundamental understanding of a company’s rate of return, or profit margin.
2. Make Predictions
Sales revenue over time is also very useful for making accurate predictions and setting realistic financial goals for the future.
3. Measuring the Effectiveness of Resource Allocation
Once you understand your sales revenue, you can also determine whether your business budget is reasonable and appropriate. This is crucial, especially if you want to expand into new markets or invest in research and development.
4. Assess Loan Eligibility
Lending institutions will always review a company’s financial statements before granting a loan. The first thing they’ll look at is sales revenue. Generally, they’re more likely to approve a loan application from a company whose sales revenue is consistently growing.
5. Determining Valuation
Sales revenue growth can also be a benchmark for determining a business’s value. High or proportionally growing sales revenue indicates to investors that the business is profitable.
Also read: Sales Data: Definition, Types, and Benefits for Business
So, that’s the basic information about sales revenue that you need to understand. Fortunately, if you’re already using the Labamu app to manage your business, you don’t need to calculate it manually.
The app can record all transactions and provide the sales data you need to evaluate your business performance. Download the app now from Google Play or the App Store!
