You know you are a sales person when you can easily calculate your sales revenue by knowing the prices and the volume of your products. In this article, we will help you learn how to calculate sales revenue with the help of a simple example.
Sales revenue is the value of a company’s sales, that is, the amount of money it makes through selling its products or services.
The value of sales revenue can be calculated using any one of three methods: Direct Sales Revenue Method, Average and margin percentage method. Read on for learning how to calculate sales revenue using these methods..
Sales revenue is the money a company makes every year from selling goods or services. It’s one of our most easily measured numbers, and it’s also at its peak (or sometimes lower) than all other income sources.
Fun fact: Some companies keep track of sales by tracking stuff like toilet paper rolls, dog food bags and shoe boxes! Crazy. But it’s not all about the money.
Sales revenue is also one of our most important measurements. It tells us how well a company is doing and whether or not we are on track to hit certain performance targets like EBITDA (earnings before interest, taxes, depreciation and amortization) for example.
Other than those measures there's only so much you can say about sales that doesn't tie in directly to performance on the bottom line.
Sales revenue is generally a positive number, and there are certainly exceptions, but most of our day to day activities involve trying to increase or decrease sales in some way, shape or form.
Sales revenue is a vital part of an organization's bottom line. The revenue generated by an organization is used for operating expenses, future investments and can be used for debt financing.
People are always curious about why sales revenue is important to a company. There are three main reasons why sales revenue is important to the company.
1) Operating expenses- The moment the revenues from sales start coming in, the company has more money for operating costs like marketing and product development . The more sales that come in, the faster an organization can pay down its debt.
2) Future investments- Sales revenue comes from selling products/services and as such it helps companies grow by creating jobs and investment opportunities or help organizations to invest for growth.
In fact most of your businesses have future goals like taking a product online, hiring employees and investing on marketing etceteras which require money upfront before generating any income (although you could get from other sources).
If a company hits financial targets and the rate at which sales come in start to surpass these expenses, it can easily ramp up future investment.
This helps an organization lock in profits that go into boosting growth and hiring new employees or investing on marketing that will eventually generate more revenue as well over time.
3) Debt Financing- Sales Revenue also goes towards paying down debt/loans of interest , providing liquidity for cash flow and working capital requirements. Paying down debt is really important for an organization to survive and grow.
Even if a company isn't sales driven, getting more value from your customers can help you generate revenue.
Whether one uses sales as the foundation of their business will depend on various factors such as type of business (e-commerce/physical retail) , size etcetera but I do believe that everything revolves around selling products or services at best.
You should note that I am only talking about effecting sales through your own efforts. If you are planning to sell services/products that you don't create or buy, it is crucial and critical for the organization to establish and market itself well before going into selling them.
How to calculate sales revenue? Sales revenue is one of the most important metrics in a company. It has many goals and uses, such as providing an overview of profitability and success, evaluating current pricing strategies, budgeting for future investments, calculating ROI, forecasting future sales and more.
There are multiple formulas used to calculate sales revenue. This article gives you a brief introduction on how to calculate it with different formulas. Before reading this article, do at least a little research on the different methods and how they work.
Different Types of Sales Revenue Formula: Here are some popular types that you can use to calculate sales revenue from your company's income statement (from net revenues):
1. Direct method- The first method in “how to calculate sales revenue” is direct method, it calculates total price before adding taxes as gross margin percentage = 100/(100-tax).
As P/E ratio is also included in this calculation with other expenses , the result is not always accurate. However, it still represents the price of the product before taxes on products sold.
2. Average method- The average method calculates gross margin percentage by dividing total selling price for the whole period x amount purchased during this period (no matter how much).
This generally results in a more exact metric than direct formula; you can find another comparison between these two methods here.
3. Margin Percentage Method As explained directly above, the margin percentage method calculates gross margin on total price before adding tax by dividing 100/gross.
As P/E ratio also included in this calculation with other expenses , the results aren't always accurate and can be negative when your company's P&L is at a loss.
4. Revenue per unit method- The last method in “how to calculate sales revenue” is revenue per unit method. It Calculates sales revenue (in US$) by dividing the sum of net assets available for sale x units sold = $1,620/$839 = US$ 6,125. Calculates each unit's gross profit as (US$6,124 - $1,847)/each unit= US$3.01 .
A quick analysis will help you understand the difference between Sales Revenue and Cash Flow.
Sales revenue - is the amount of money that you get from selling a good or service. It includes all the payments you receive during one year as well as other income like bonuses, concessions or discounts obtained.
Cash flow - simply defines how much cash actually flows into your business after expenses and before debt repayments are repaid. For example, it tells when to pay interest on loans held in this personal capacity.).
How many times have we heard the expression "You will never make money with that product or service." It basically means, no matter what you do there will be someone out there selling a similar good/service. The only difference between the two is how they market it and where they distribute their products.
When you are looking for a business idea and market your product, you can either employ in-house staff or hire an external distributor. If it is cash flow that interests you make sure the model fits with how you're currently operating.
Sales revenue vs. cash flow : what matters of course is counting change !! The challenge here comes from having an item on sale through one channel and seeing the same product for a massively discounted price in another channel.
For example, buying tennis shoes by Zalando via eBay and then selling them through your local shop or premises. What matters here is where you actually make money out of it? Is it increasing sales revenue via higher margins on stores etc.? Or do you earn more cash ?
Obviously we would rather go along with the second option while doing this exercise!
Of course when creating our projections in this table, we need to be able to list several items which will help us from a cash flow perspective: How long it takes for products/services in our business model cycle. So if you have holiday related or fashion (more seasonal) products , then make sure that time frame is covered.
This is a list of steps you can take to improve your sales revenue. These tips will help you increase your sales revenue by delivering better customer service and providing the products and services that are most likely to interest your customers.
1. Showcase your customer service- Companies that consistently provide superior customer service have better bottom line results than those who do not.
Providing a positive, professional experience to customers will enhance their loyalty and willingness to purchase from you in the future.
This high level of customer retention will influence even the most skeptical buyers into purchasing on your terms or transferring their business elsewhere seeking more favorable deals!
To achieve this finish by delivering efficient processes for handling all customer interactions. That includes proactive phone calls, email and chat, as well as their product delivery times.
2. Improve your customer service records- A good time to improve your Customer Service Records is during the end-of-season or holiday season when you are likely to sell a higher percentage of sales than most other months in year sales Revenue performance may not be static over long periods of time but its very accurate timing will effectively determine if you have prepared for the correct classification of your products and prices this time of year or not.
Successfully starting with good customer service shown through to team members, showing constantly how community resources such as loyalty programs represent greater value than other enhancements will help you create long lasting relationships with your best customers while they are looking for new ones.
At any given moment there is likely only a handful of groups in which you can find some sort of administrative system that keeps track online and automates their fulfillment of your leads.
To effectively manage this kind image as a professional, record keeping procedures and communications have to be automated so that your team functions using consistent standards throughout the year consistently between every department you may contain at least one or two workers who can take care an outstanding amount of data on customers who would not otherwise get past them without exceptional customer service records .
3. Cashback skills strategies- As tempting as it is ( and many times) in today's world to make a quick buck, it is far more effective to think about how you do things when considering valuable revenue streams.
Many managers will definitely go overboard making sure they have completed the best features possible and are meticulously realistic before embarking on literally everything else at them.
What does this mean for their success? Cash skills strategies recognize that direct sales deals with your customers (your prospects or leads ) can be a lot more effective than the more typical approach that largely uses inbound marketing tactics.
The concept of quality cashback skills is to bring attention to your existing direct customers through a constant and well established buying program, which will broadcast potential leads as money comes in so they can see where it's headed with these prospects right away.
These days many people who run their own businesses have built an audience of loyal repeat customers by giving them free stuff throughout the year like discounts or access to limited or exclusive sales.
This sort of activity should not be seen as a loss leader simply because you will do it anyway and save money doing so (such things are small models) over the long term versus selling cheap products at every opportunity but from a cash skills strategy perspective, it can play an important part getting in touch with want your customers already buy on occasion.
