Sales revenue is the key to your business’s financial growth. Understanding and tracking sales revenue gives you a snapshot of your company’s current performance and a powerful lens into its future potential.
In this guide, you’ll learn what sales revenue is, how to calculate it and how you can use it to steer your business toward success.
What is sales revenue?
Sales revenue is the money you make from selling products and services over a specific period. It’s one of the fundamental key performance indicators (KPIs) for measuring a company’s sales performance.
What does sales revenue include?
Sales revenue typically includes income from:
The sale of products and services
Subscriptions and memberships
Commissions from third-party sales
Franchise fees
It doesn’t include other types of income like interest, investment income or gains from selling assets. It also doesn’t include the cost of goods sold (how much you spent on materials or labor to create your products and services).
Gross sales revenue vs. net sales revenue
Gross and net sales revenue tell two parts of the same story. Gross sales revenue is the raw amount of money a company would make from sales if it offered no discounts or returns. Net sales revenue reflects the actual money a company takes home from sales after these deductions.
Gross sales revenue is the total income earned from selling products or services. It includes sales transactions at their full value before factoring in discounts, returns and allowances. It’s a raw measurement of a company’s sales before adjusting for deductions. It’s also the starting point for calculating revenue and profits in detail.
Net sales revenue is the money earned from sales after subtracting discounts, returns and allowances. It’s the amount of cash a company generates from sales. It provides a more accurate picture of what a company actually earns and can be more useful when evaluating sales operations.
For example, say your company sold $100,000 worth of products in the last financial year. Your gross sales revenue is $100,000. However, you had $5,000 worth of returns, $2,000 worth of sales allowances and $7,500 in discounts. Your net sales revenue is $100,000 minus those price reductions, or $85,500.
Note: Sales discounts are price reductions offered in promotions, returns are products that customers have returned and allowances are price reductions for mild defects or errors.
Is sales revenue the same as revenue?
Revenue and sales revenue are distinct concepts, although often used interchangeably. Here’s the difference:
Revenue is a broad term that includes income from all company activities, not just sales. It also comprises non-operating revenue like interest, dividends, rental properties, licensing fees and more.
Sales revenue is just one type of company revenue: the income generated from selling goods or services.
Keeping these two sales metrics separate is important as they provide different business insights. Total revenue gives you a complete view of your company’s income, while sales revenue focuses on core business performance.
Why sales revenue matters
Calculating sales revenue benefits many business activities, from day-to-day operations to strategic management to maintaining investor relationships. It helps you stay informed, agile and competitive in your market by enabling you to do the following.
Evaluate business health and performance
Sales revenue is one of the main signals of sales performance, letting you see how effectively your company’s core activities generate income. Consistent and healthy sales revenue is a strong sign that your business is thriving. It means your company can easily cover expenses and invest in new growth opportunities.
Analyze trends and forecast sales
Tracking sales revenue gives you a historical baseline to forecast sales and budget accurately. With an idea of past sales trends, you can find patterns that help you predict future sales periods more reliably. You can then create data-driven sales targets and make informed decisions that boost sales.
Inform product strategies
Sales revenue is a benchmark for evaluating your products and services’ performance. It helps identify your bestsellers and underperformers so you can make better decisions about inventory management, marketing strategies and product development.
Download Your Guide to Sales Performance Measurement
How to calculate sales revenue
You calculate sales revenue differently depending on whether you sell products or services. Here’s how to calculate gross and net sales revenue for each, followed by a detailed example you can use as a template to work out your revenue figures.
How to calculate gross sales revenue
To calculate gross sales revenue as a product-based company, multiply the number of units sold by the sales price of each unit. Here’s how to find sales revenue:
Product Revenue = Number of Units Sold × Price per Unit
For service-based companies, the gross sales revenue formula is:
Service Revenue = Number of Customers × Price per Service
Apply the above gross sales revenue calculators to each type of product or service you sell. Then, add up the totals for each product and service to get your overall sales revenue.
How to calculate net sales revenue
To calculate your net sales revenue from product sales, subtract sales returns, allowances and discounts. Here’s the adjusted formula for net sales revenue:
Net Sales Revenue = (Number of Units Sold × Price per Unit) – Returns – Allowances – Discounts
If you sell services, the net sales revenue formula is:
Net Sales Revenue = (Number of Customers × Price per Service) – Returns – Allowances – Discounts
Sales revenue calculation example
Let’s break down our calculation with a sales revenue example.
Say you’re a retailer that sells clothing and accessories. Your goal is to calculate your sales revenue for January.
That month, you sold:
500 t-shirts for $20 each
250 keyrings for $2.50 each
100 pairs of shoes for $50 each
50 subscriptions to your $10 per month membership program
The first step is to calculate your gross sales revenue for each product and service according to the formula:
Gross Sales Revenue = Number of Units Sold × Price per Unit or Service
| Product/Service | Calculation | Gross Sales Revenue |
| T-shirts | 500 × $20 = $10,000 | $10,000 |
| Keyrings | 250 × $2.50 = $625 | $625 |
| Shoes | 100 × $50 = $5,000 | $5,000 |
| Subscriptions | 50 × $10 = $500 | $500 |
| Total | $16,125 |
In the same period, 25 people returned t-shirts after changing their minds. You also offered a 10% discount to a customer who bulk-bought 100 keyrings. To work out your net sales revenue, you first need to add up these returns and discounts.
| Returns/Discounts | Calculation | Total Cost |
| T-shirt returns | 25 × $20 = $500 | $500 |
| 10% discount | (100 × $2.50) × 10% = $25 | $25 |
| Total | $500 + $25 | $525 |
Now that you’ve worked out the gross sales revenue and the cost of your discounts and returns, you can calculate net sales revenue:
Net Sales Revenue = Gross Sales Revenue – Returns – Allowances – Discounts
Net Sales Revenue = $16,125 – $525 = $15,600
There you have it, your company’s January sales revenue is $15,600.
How to report sales revenue (and gather insights)
Sales revenue is an important metric to report in financial statements like your income statement or balance sheet. These kinds of financial reporting give your team, shareholders, investors and regulatory bodies a clear view of your company and its performance.
Let’s look at one way to use sales revenue to learn about a company’s health.
Say a company fills out an income statement template. Sales revenue goes on the top line as the starting point for calculating other key metrics like gross profit and sales income.
The company can then determine its net income in three steps:
Convert total sales revenue into net sales by subtracting discounts, allowances and returns
Convert net sales into gross profit by subtracting the cost of goods sold (the cost of materials, labor and anything else that went into creating and selling its products)
Convert gross profit into net income by subtracting operating expenses (the costs of running a company, including employee wages, depreciation and sales taxes)
Here’s what a net income calculation looks like, you can request your free template below the image:
Sales Income Statement template
In the example above, the company reported a gross sales revenue of $480,000. Subtracting sales returns and discounts gives a net sales revenue of $460,000.
Further subtracting the cost of goods sold ($119,000) and the total amount of money spent on operating expenses ($136,000) leaves a net income of $204,740.
For more key sales calculations, check out our sales and sales tax calculator and our ROI calculator
How to analyze the income statement results
What does all this mean for you as a business owner? Analyzing the metrics on your income statement helps you find opportunities for improvement.
For instance, if you have high sales revenue but low profits, you might need to cut down on expenses or find a way to improve cash flow.
In our example, the company went from a sales revenue of $480,000 to a net income of $30,000. This huge reduction could suggest that:
The company spends too much on business operations. It might reduce costs by restructuring or providing new sales incentives for its salespeople.
The company sells its products too cheaply. Revising its product pricing strategy can increase profit margins and generate more income per unit sold.
As you track your sales revenue over time, you can gain similar insights to help you optimize your company’s performance and sales efficiency.
Final thoughts
Analyzing sales revenue is crucial to understanding financial health, reporting accurate profits and making better forecasts. It can give you clear insights into your company’s financial position, helping you make strategic decisions to increase sales and boost profitability.
If you want to streamline sales tracking for your business, consider Pipedrive. Pipedrive’s intelligent revenue platform automates your revenue forecasts and lets you create custom sales reports and more. Sign up for a 14-day free trial today.
