Total Revenue - Formula, Definition, And Its Difference To Gross Revenue
For a business to be financially stable, it must have a healthy cash flow.
Although it is unavoidable for a company owner to incur different costs, having a larger profit or total income ensures that you will be able to continue operations.When it comes to working in sales, knowing how much money you make and what kinds of money you make are essential skills.
The goal of this article is to help you understand how to determine your company's total revenue, as well as the differences between net revenue and gross revenue.
What Is Total Revenue?
COPYRIGHT_MARX: Published on https://marxcommunications.com/total-revenue-formula/ by Keith Peterson on 2022-10-22T17:58:54.970Z
Before deducting any expenditures from the total revenue, or gross revenue, your firm has generated from all sales.
Interest and dividends from investments might be included in total income, depending on your company.
The more money your firm makes, the more money you have in the bank. Your sales methods, pricing, and more might be to blame if you observe a decrease in overall income.
Total income may be used to:
- Look at how healthy your company's finances are
- Identify areas of concern
- Make changes to the price of your products.
Your income statement will show you how much money you've made in total.The profit and loss of your business during a given time period are summarized in your income statement.On your income statement, total revenue is often shown as a separate line item.
How To Calculate Total Revenue
If you want to know how much money you've made, just sum up all of your income streams.
As an example, consider the following.
Assume you're the CEO of an accounting software SaaS startup.Three sources of income are available to you:
- Monthly fees for the use of your computer software
- Services for tax preparation on-demand
- a course on financial management for enterprises
When growth and attrition are taken into account, here is what your revenue may look like during a four-month period:
The monthly income for each of the three revenue sources can be seen in the screenshot above.The "Total" at the bottom of the page is your monthly total income.
Include all of your sources of money, even if they only account for a tiny portion of your overall sales, when determining your total revenue.
All of your company's income, whether it comes from one-time payments or recurring monthly subscriptions, must be taken into consideration.Your historical and future revenue forecasts and analyses will be more accurate if you have this information.
Net Revenue Vs. Gross Revenue
The more you grasp the difference between net revenue and gross revenue, the easier it will be for you to identify their role in your company's financial situation..Profit after costs, such as the cost of products sold, is referred to as "net revenue" in the business world.
Shipping, manufacture, and storage costs would all be removed from a $50 sweater's selling price to arrive at the net profit.For a corporation to produce a substantial profit, its sales must outpace its costs.Gross revenue, on the other hand, is your company's income before these reductions are taken into account.Based on this scenario, gross revenue is $50.
Despite the fact that company owners want to be successful and concentrate on increasing their income, they must also examine how much they are spending.Salaries, building expenditures, office supplies, and electricity bills are just a few examples of these costs.Many of these costs may only need to be paid once.
Because of this, investors and lenders may more correctly assess your company's profitability by looking at your company's gross sales.The more money you make, the more likely you are to get a loan or find an investor.
It's also vital to keep in mind that gross revenue and total revenue each have their own distinct characteristics.Total revenue, as opposed to gross revenue, considers all of a company's revenues, not only the sales of a product or service.
Why Total Revenue Is Important To Business Owners
Details on how the artisan will meet greater demand for his boots—if he chooses to give the discount—are missing from the prior scenario.Is it possible that the higher production volume will result in lower production costs per boot?Are there enough customers for him to recruit a second bootmaker?Is it going to affect the pace of production?
When pricing a product or service, there are a lot of things to keep in mind.As a starting point, businesses may use the total revenue formula to figure out how much to charge.
Another example might be a self-employed consultant.Consulting services are priced at $200 per hour for her.Assuming that she would require at least 10 hours of non-billable labor per week, she understands that her maximum weekly income will be $6,000 (30 hours x $200/hour) if she wants to work 40 hours per week.
That statistic tells the consultant right away that she has to raise her pricing or find other sources of income that aren't tied to billable time. Alternatively, she may seek for new revenue streams that aren't tied to billable time.
Alternatively, if the overall revenues look to be reasonable, she may begin to examine probable expenditures, including the software she'll require or her tax liabilities.When it comes to her pricing strategy, overall revenue provides her with a starting point.
In order to evaluate whether their company is making or losing money, business owners may use the total revenue formula.They can see whether their company is expanding or if they need to make a change to improve outcomes in this manner.