What is Sales Revenue?
Sales revenue is calculated by multiplying the number of products or services sold by the price per unit. Sales Revenue = Units Sold x Sales Price.
Sales revenue includes all sales of products and services but does not necessarily count those sales in real time. Using our example above, Roosevelt’s sold and received payment for 40 bears in June at $25 a bear for a total of $1,000. Let’s say Roosevelt also mended five bears at a cost of $20 a bear.
Customers paid for those mended bears, but they will not be returned to customers until July. Under accrual basis accounting, sales for services of those five bears cannot be counted on June’s books. That revenue must be recognized when the bear is delivered to the customer. This is called deferred revenue.
Sales revenue does not include the cost of goods sold (COGS)—the costs associated with the materials, labor and manufacturing of the bears themselves. It also does not include income earned on activities that are not related to the company’s core business of making and mending bears.
How to list sales revenue on income statements
Sales revenue should be listed on every income statement along with other important financial figures. Income statements can be structured as single-step income statements in which there is one category for income and one category for expenses, or they can be structured as multistep income statements in which incomes and expenses are organized by expense account. Here is how to structure a single-step income statement with an example:
- Include a descriptive heading
- Calculate revenue
- Calculate expenses
- Find net profit
1. Include a descriptive heading
Your heading should include your business’ name, the title of the document and the coverage period of the income statement. This makes it easier for the reader to know what they’re reading quickly. If your statement has more than one page, you can add the header to each new page.
For the Year Ending Dec. 31, 2019
2. Calculate revenue
This category will list your sales revenue and any other revenue streams the business may have. You can write your revenue section with “sales revenue” and “other revenue” lines or itemize your revenue more specifically depending on your needs and the audience for your income statement.
For example, an income statement used for internal employees may provide specific itemizations for products or costs to help inform budget creation. Income statements for purchasing managers would likely include each specific supply and merchandise expense so they can see where they might be able to reduce their budget. An income statement used for other stakeholders, such as board members, can be more general so it’s easier to read.
- Sales revenue: $47,000
- Other revenue: $2,871
- Total revenue: $49,871
3. Calculate expenses
Like the revenue category, you can choose how specifically to itemize your expenses. As above, the breakdown of expenses may depend on the audience for whom you are writing the income statement. For example:
- Merchandise: $19,000
- Payroll: $3,000
- Supplies: $500
- Rent: $1,000
- Utilities: $500
- Total expenses: $24,000
4. Find net profit
Net profit is the total income earned after deducting all expenses. This is usually the most important number on the income statement. It shows the real amount of money earned after all income streams, losses and costs have been accounted for. When accountants, financial analysts and executives understand the net profit, they can plan for the future, including increasing sales revenue. Subtract the total expenses from the total revenue to calculate net profit.
- Total revenue: $49,871
- Total expenses: $24,000
Net profit: $25,871
Using the example figures from Eleanor’s Boutique, the company earned a total of $49,871 in revenue but had a total of $24,000 in expenses. By subtracting $24,000 from $49,871, you can see Eleanor’s Boutique has a net profit of $25,871.
Why is Sales Revenue important?
Sales Revenue is vital because of its comparability—it’s the top-line metric businesses can benchmark past and future performance against and use in forecasting, planning, and strategy going forward.
“Sales revenue is essential to know because it comprises a huge part of the company’s total revenue,” said Charles McMillan, founder at Stand With Main Street.
As Profit Well explains it, here’s how Sales Revenue can help guide long-term strategy:
- Planning out operating expenses
- Defining growth strategy and investments
- Analyzing historical revenue trends
- Measuring the efficacy of your pricing strategy
“Sales revenue is the key performance indicator used to make business decisions including operating expenses, pricing strategy, and growth plans,” Amanda Oliveri, VP of Client Strategy at TechnologyAdvice, told us.
Sales Revenue Example
Let’s look at a few examples of Sales Revenue and how it differs from Total Revenue.
Here’s one: A software company generates revenue every quarter by selling three different kinds of software, along with implementation services. In a typical quarter, they earn $300,000 in revenue.
Last quarter, they sold off one of the three software products for $1 million. Their Total Revenue for the quarter was $1.3 million, but that doesn’t tell the real story of their revenue. Their Sales Revenue for the quarter, however, is still $300,000—that’s how much revenue they generated from their core business. The Sales Revenue number is much more indicative of future revenue forecasts.
Parker Russell—owner, CEO, and CFO at Black Ink Coffee—shared another example:
“Sales Revenue is the cost of the product multiplied by selling price. So if I sold ten 5-lb sacks of Brazillian Coffee Bean at $67.49 a pack, then my sales revenue for that product would be $674.90. Sales Revenue is the number before reductions are made, before COGS are calculated out of the equation, and other expenditures.”
“This top-line number is important to understand the net profit,” Parker added. “Based on your final number you will be able to know if you should raise your price or offer promotions!”