WallStreetMojo

WallStreetMojo

WallStreetMojo

MENUMENU
  • Free Tutorials
  • Certification Courses
  • 250+ Courses All In One Bundle
  • Login
Home » Accounting Tutorials » Income Statement Tutorials » Sales Revenue

Sales Revenue

Sales Revenue Definition

Sales Revenue refers to the income generated by any business entity by selling their goods or by providing their services during the normal course of its operations and it is reported annually, quarterly or monthly as the case may be in the Income statement / Profit & Loss Account of the business entity.

It is the very first line time available in the income statement. In the case of manufacturing companies, it is a calculation by multiplying the number of units sold or produced by the average sales price per unit of that item.

Sales Revenue Formula

Sales Revenue formula= Number of Units Sold * Average Sales Price per Unit
Sales Revenue

For serviced based companies, revenue is expressed as a product of the number of customers served an average price of service which is represented as,

Sales Revenue formula = Number of Customers Served * Average Price of Service

However, it is important to note that the revenue booked does not necessarily mean the entire revenue from sales has been received in cash. A certain portion of this revenue may be paid in cash, while the remaining portion may be purchased on credit, through terms such as accounts receivable.

Furthermore, the revenue can be broken down into gross and net revenue. Gross sales basically include all receipts and billings realized from the sale of goods or services but does not deduct any sales returns and allowances. On the other hand, net sales deduct all sales returns and allowances from gross sales.

Steps to Calculate Sales Revenue

The steps in the determination of revenue from sales (gross revenue for a manufacturing unit) are the following three steps:

Popular Course in this category
Sale
All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)
4.9 (1,067 ratings)
250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion
View Course
  • Step #1- Firstly, let us determine the number of units manufactured and sold during a specific period, say annually.
  • Step #2-Now, since the number of units produced drives by demand, which forms the basis of the function for the price, let us assess the average sales price per unit.
  • Step #3-Finally, the revenue is a calculation by multiplying the number of units sold (step 1) and the average sales price per unit (step 2).

 

Sales Revenue Examples

Example #1

Let us consider the example of a tyre manufacturer, which produced 25 million tyres across different vehicle segments in the year 20XX. Now throughout the entire year, the company sold 10 million tyres at an average price of $80, 10 million tyres at an average price of $125, and 5 million tyres at the average price of $200 across different vehicle segments. Determine the revenue for the company.

Sales = Number of units sold * Average sales price per unit

sales revenue 1

sales revenue 1-2

  • Total Revenue = $3,050,000,000 or $3.05 billion

Example #2

Let us assume that there is a mobile manufacturing company in which the monthly sales volume has increased from 1,500 to 6,500 during the 12 months ending in November 2018. The price function during each month is governed by the function (7000 – x) where ‘x’ is the number of mobiles sold during the month.

Please note that during March 2018, the number of mobile sales volume stood at 2,900. Calculate sales in March 2018 and November 2018.

Now, based on the available information, the monthly revenue from sales can be calculated as below.

  • Monthly sales = x * (7000 – x)
  • Monthly sales = 7000x – x2

The mobile sales stood at 2,900 units during the month of March 2018, then the total monthly sales in March 2018 can be calculated as,

  • Monthly revenue March 2018 = 7,000 * 2,900 – (2,900)2
  • Monthly revenue March 2018 = $11,890,000 or $11.89 million

Again the mobile sales went up to 6,500 unit during the month of November 2018, then the monthly sales November 2018 can be calculated as,

  • Monthly revenue November 2018 = 7,000 * 6,500 – (6,500)2
  • Monthly revenue November 2018 = $3,250,000 or $3.25 million

Relevance and Uses

Although profit might be the major focus of the smaller business entities, there is another financial term that is just as important. It is the measurement of sales that can provide actionable information about the business, which is not captured by profitability alone. One can extract the maximum benefits out of the business information by recognizing the importance of revenue measurement.

It helps in examining trends in sales over a period of time, which enables the business owners to understand their business much better. Some of the benefits of tracking the revenue are like analysis of daily sales trends to understand if there is any particular pattern in customer behavior. Further, a business owner can also observe the monthly revenue from sales trends to establish a relationship between sales volume and seasonality. Finally, based on this revenue trend, the management can make certain decisions to boost production or support the sales price per unit by managing the sales volume according to the customer profile, seasonality, etc.

Recommended Articles

This article has been a guide to Sales Revenue, its definition, and its meaning. Here we discuss the formula to calculate Sales Revenue along with practical examples. You can learn more about financial analysis from the following articles –

  • Is Unearned Revenue a Liability?
  • What is Unearned Revenue?
  • Profit vs. Revenue
  • Markup Formula Calculation
0 Shares
Share
Tweet
Share
Primary Sidebar
Footer
COMPANY
About
Reviews
Contact
Privacy
Terms of Service
RESOURCES
Blog
Free Courses
Free Tutorials
Investment Banking Tutorials
Financial Modeling Tutorials
Excel Tutorials
Accounting Tutorials
Financial Statement Analysis
COURSES
All Courses
Financial Analyst All in One Course
Investment Banking Course
Financial Modeling Course
Private Equity Course
Venture Capital Course
Excel All in One Course

Copyright © 2021. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.
Return to top

WallStreetMojo

Free Investment Banking Course

IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials

* Please provide your correct email id. Login details for this Free course will be emailed to you

Book Your One Instructor : One Learner Free Class
Let’s Get Started
Please select the batch
Saturday - Sunday 9 am IST to 5 pm IST
Saturday - Sunday 9 am IST to 5 pm IST

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Login

Forgot Password?

WallStreetMojo

Free Accounting Course

You will Learn Basics of Accounting in Just 1 Hour, Guaranteed!

* Please provide your correct email id. Login details for this Free course will be emailed to you

New Year Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More