Total revenue refers to the amount of money you earn from selling goods or services during a set period. It’s one of the most basic accounting terms and serves as the basis for many other financial metrics and formulas. Calculating total revenue can help you to accurately manage your accounting. Keep reading to learn more about total revenue.
What’s the Formula for Total Revenue?
You can calculate total revenue by multiplying the price of goods sold by the quantity sold. Consider your childhood lemonade stand as a basic example: if you sell 10 cups of lemonade for $2 each, then your total revenue is $2 x 10 = $20.
Calculating total revenue seems easy at first, but it can get harder if you have a large number of products (like a clothing store, which can have thousands of SKUs) that are sold for different amounts with coupons, sales, and clearance listings.
How Is Revenue Different From Profit?
Revenue only reports on the amount of money that a business brings in—it doesn’t show how much a business spent to reach that amount. Profit is calculated by subtracting the total cost from the total revenue, showing how much money a business made.
Returning to the lemonade stand example, a child might spend $8 on lemons, sugar, water, and cups to make and serve drinks to customers. The profit on $20 in total revenue is $20 – $8 = $12.
Revenue isn’t always an accurate indicator of whether or not a business is profitable. For example, a second lemonade stand might make $25 in total revenue, but if it cost $15 to make and serve the beverages, then the second stand’s profit of $25 – $15 = $10 is actually less than the first stand.
What Can You Calculate With Total Revenue?
There are multiple business metrics that you can calculate by tracking your total revenue. A few useful terms that you should know include:
- Gross profit: the amount of money a company makes after subtracting the cost of goods sold (COGS), typically states as a dollar amount
- Gross margin: the average profit that comes after you subtract COGS from the revenue, usually represented as a percentage
- Net income: the company’s total profits after subtracting business expenses
Tracking these metrics can help you to set sustainable goals for growth. For example, if you grow your revenue by 20% this quarter but your net income only grew by 2%, then your growth—while positive—was not as great as you may have thought originally.
Where Can You Find Total Revenue?
Total revenue is often the base for your income statement or profit and loss (P&L) sheet. You’ll start with your sales revenue at the top and then work backward to subtract other expenses and costs to understand your profitability.
While total revenue doesn’t always paint a clear picture of your business finances, it serves as a valuable starting point. You can also set revenue goals to help drive sales within your business. Check out the tools offered by Sunrise, which are free for small businesses, so you can start tracking your revenue and using it to guide your business strategies.