For knowing properly about the revenue formula firstly, you have to know the revenue. Revenue means the total amount of money for a company. The formula is quantity x price=revenue. This money is actually coming from the specific period. The discounts of any returned products are included in revenue. Costs will be reduced from the total income for fixing the net income. Revenue formula provides ideas about a company’s sold products. Actually, this formula helps to find out the amount of incoming money according to sales. As sales will increase the total income will increase. We can express this formula below.
Sales Revenue formula = Units Sold x Sales Price
Different types of revenue:
- Revenue fees:
- Interest revenue
- Rental revenue
- Divided revenue
How it works:
You can easily understand the total revenue formula. From the example, you will get a clear idea of how to calculate revenue formula. Overall, a company’s goal is to earn profit from sales. This earning will come from the sales revenue. Total revenue formula is related to total sold products, returned products, discounted products, and other services. The increases and decreases in revenue have a great effect on the company’s all sector. You have to generate and realize revenue. If the revenues are decreasing day by day, then the payroll and other expenses must have to decrease. Otherwise, Company can have faced great hampered. On the other hand, if the company’s revenue is will increasing then it means more earning. It is great for debt reduced, the employee’s salary increase and others.
Revenue formula calculating:
We can understand the calculating by an example. Imagine you have a crockery shop. You run this shop for 1 year. Now if you want to know the total revenue of 6 months. Firstly, you have to know the total sold products. The price and types of products also need to know. For this, you can just check out the account books or register transaction. It is easy to find if the accounting process is clear of your business.
- Dinnerware 500
- Cutlery 700
- Coffee mugs 500
- Water glasses 600
Imagine, dinnerware price is (5 $ per set)
Cutlery: (15 $ per set)
Coffee Mug: (6 $ per piece)
Water glass: (3$ per piece)
You have to calculate each product price multiplying as their number. Then you can be clear that how many products you sold and what is the revenue.
Dinnerware 500 set x 5 = 2500$
Cutlery 700 set x 15$ = 10,500 $
Coffee Mug 500piece x 6$ = 3000 $
Water glass 600piece x 3$ = 1800 $
We already get the total sold products cost. Now it is so easy to find the revenue. For the total revenue, we have to add all the cost for each product. Let’s do this
2500$ + 10,500$ + 3000$ + 1800$ = 17800 $ (this is total revenue)
It is clear now that this crockery shop’s total revenue is 17,800 $ yet we don’t know the total profit of the business owner. It should be calculated after including all of the costs. The profit can be calculated by using the revenue formula. The buying cost of these products is 12,000 $ for per 6th months. This expense is also known as products and service cost. A crockery shop has other products also like serve ware, bowl, children’s tableware etc. Sometimes a number of products can be broken at the time of carrying. This cost is including with deduction cost. The deduction cost is 2000$. If we want to get the gross profit the deduction cost has to cut from the net sales. There an overhead cost for every business like house rent, electricity bill. The operating or overhead cost is 1000$.
A better result will come if you have proper knowledge about this types of accounting.
Crockery shop financial report:
Revenue Report: 17,800$
Net sales: 16300 (revenue 17800$ – deduction2000$=16300)
Gross profit:4300 (net sales 16300$ – COGS 12,000$)
Operating expenses: 1000$
Net income: (revenue 17800 – COGS 12000$ – 1000$)
Net revenue formula:
Net revenue and revenue growth formula is not the same term. Net revenue refers to price coordination, reduction. In this case, a company must have to follow the rules of GAAP and IASB. Because this rules can give you an appropriate result. Basically, net revenue discusses the administrative expenses. It doesn’t account for any general expenses. It defines the value of your business.
Net revenue formula= revenue – expenses + gains – loses
The importance of revenue formula:
Sales revenue is so much challenging for every business owner to emphasize the net revenue formula. It has a great importance to understand the number of sales. The main target should be earning more revenue by increasing sales. A business can achieve good at performance and profitable by increasing sales revenue. It can judge the overall condition It is important for financial engine, growth, credit, and confidence. and can take proper steps. So the importance of revenue formula can’t be described in a word.
The main target of a company is to earn money. So revenue is the most important factor to understand the development of a company. So every business owner must have to know about revenue formula and its results. So that they can calculate it properly and it can take proper decision for the business.