Sales revenue is the primary indicator of demand for a business’s products or services. As the first component of an income statement, sales revenue is the starting point for calculating a company’s net income. Together with profitability, sales revenue offers critical insight into a company’s financial condition and growth prospects to a business’s owners and managers, as well as lenders and investors. Here is a more detailed look at sales revenue.
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What is sales revenue?
Sales revenueis a measure of how much money a company brings in from selling products or services. Sales revenue is expressed as a dollar amount that appears at the top of a company’s income statement, and it may be listed either as “sales” or “revenue.” The two terms are often used interchangeably, but technically they’re different. Sales are a form of revenue, but not all revenue comes from sales.
Total revenue, or gross revenue, is greater than sales revenue when a company has income from things other than sales of its products or services, such as income from rent or investments. If that’s the case, the extra revenue is often listed lower on the income statement, as non-operating income.
Because it appears at the top of the income statement, sales revenue is often referred to as the top line, or first line, on a company’s financial statements. This is in contrast to the bottom line on an income statement, which is profit, or net income. Profit is calculated after all expenses are subtracted. Professional investors performing financial analysis sometimes judge a company’s prospects by trends in sales revenue as much as they do by profitability.
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What are the main sources of sales revenue for a business?
A company’s core business generally sells either products or services (or a combination of both) and is the main source of sales revenue. Many companies have more than one product or service, and many have both, so the top line on the income statement sums up all the sales of a company’s products and services.
Product sales are simpler because they are based on separate transactions: a customer buys a product for a given price. The sum of these customer transactions is product sales revenue.
Sales revenue for a service business can take a number of different forms. It can, for example, be an hourly rate, a one-time fee, or be in the form of recurring revenue streams, such as subscriptions.
How to calculate sales revenue
To calculate sales revenue, start with net sales, not gross sales revenue. Net sales revenue is what the business has after customer returns, discounts, and allowances. Net sales, along with income generated from other sources, is sometimes listed on a company income statement as net revenue—but for this calculation you specifically want net sales.
Sales revenue from products is determined by the number of individual units sold times their sales price. If a business has multiple products, sales revenue is the sum of each product sold multiplied by the unit price. For example, imagine that widget maker ABC Corp. sold 100 left-handed widgets for $10 each, or $1,000 total, and 200 right-handed widgets for $15 each, or $3,000 total. The sales revenue formula then is:
(Number of units sold of product A x sales price) + (number of units sold of product B x sales price) = sales revenue
In this case, the sales revenue formula would be expressed as:
$1,000 + $3,000 = $4,000
Sales revenue from services is typically determined by the number of customers served, times the price of the service. If there’s one standard service price, the sales revenue calculation is simple. For example, 100 service customers times the standard price of $200, equals $20,000 in sales revenue. For more than one type of service, sales revenue is the sum of each service level’s price multiplied by the number of customers for that service level.
Let’s say XYZ Services Co. provides two levels of service: Standard at $200 and Premium at $400. It serves 50 customers for the Standard price of $200, or $10,000, and 50 customers for the $400 Premium price, or $20,000. Sales revenue for XYZ then is:
(Units sold of service A x sales price) + (units sold of service B x sales price)= sales revenue
This would be expressed as:
$10,000 + $20,000 = $30,000
Many businesses that sell both products and services need to calculate sales revenue for each product and service, before adding them up to arrive at total net sales revenue.
How to increase sales revenue
- Know your customers
- Entice shoppers
- Make buying easy
- Have a robust website
- Use social media
- Review products/services and pricing
1. Know your customers
Understanding your customers’ wants and needs is indispensable if you expect them to remain loyal and spend more on your goods and services. One way to understand current and potential customers better is by surveying them to get their opinions of your products or services, helping you learn what they want and making them feel that you understand them. You could do this yourself, or hire a market research firm.
2. Entice shoppers
To keep new and existing customers interested, offer discounts for recurring sales or for multiple products sold as a package. Cross-sell complementary products, or upsell a premium product with more benefits than a standard product. For prospective buyers, consider free trial offers, low introductory prices, limited-time offers, and product demonstrations.
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3. Make buying easy
Maintain adequate inventory so that you can promptly meet customer demand both in-store or online. Be prepared to help customers when a product is out-of-stock, offering to alert them when the product is back on store shelves, fulfill the order online automatically, or suggest alternative products. Provide convenient payment options, such as a secure online payment gateway like Shopify Payments.
4. Have a robust website
If you run an online business, a well-maintained website is essential. At the same time, abrick-and-mortar business shouldn’t treat a website as an afterthought. Have your full product or service lineup displayed in a clear and easy-to-access format that both educates customers about your offerings and makes purchasing easy. Consider hiring a web developer to design your site and create content that will get customer attention. Provide robust customer support via chatbots, human agents, or a combination of both.
5. Use social media
Many customers and prospects use social media, so your business can benefit from social media profiles that promote your products or services. Tailor your business profiles to the particular social media outlet and its user base. A LinkedIn profile, for example, should be different from a TikTok or Instagram profile because they have different audiences and serve different purposes.
6. Review products/services and pricing
An analysis of sales might show that customers favor certain products or services over others. Use customer feedback to find out if style, functionality, or price drives their preferences. Monitor changes in your industry, shifts in customer preferences, and adjustments buying habits. Review your website and social media content to improve your marketing. Instead of listing all the features of your products or services, which customers might find of little interest, consider stressing how your offering’s features will help them in their lives or work.
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Sales revenue FAQ
Is sales revenue the same as profit?
Sales revenue and profit are different. Sales revenue is the income a company receives from selling its products or services before any expenses are deducted. Profit is calculated after all expenses have been subtracted on a multi-step income statement. It’s typically called net income on an income statement.
What is an example of sales revenue?
Here is a hypothetical sales revenue example: An online retailer of car interior accessories sells 500 items in the third quarter, at an average price of $40 each. In this case, the sales revenue formula for the quarter is: 500 x $40 = $20,000.
Can sales revenue be negative?
It’s possible, but very unusual for a company’s sales revenue to be negative. This could happen only if a business had to give credit back to customers, such as through sales returns and allowances. If those credits total more than the company collected from sales in a given period, sales revenue would be negative.
Can sales revenue fluctuate from month to month?
Yes, sales revenue can fluctuate. Unless a business has a contract that locks in monthly sales, it is typical for sales to rise and fall due to changes in the amount of products or services sold, price adjustments, or seasonal shifts in demand. Retailers often have big swings in sales revenue, for example, with an increase in shopping as holidays approach, followed by lulls in consumer demand.