Sales revenue is the money a business makes from its core activities, including the sale of all products and services. Unlike the broader term revenue, it excludes money generated from non-core sources, like interest, royalties and fees.
“Sales revenue is the number one indicator of how your business is doing,” says David Brewer, Co-Founder of Protect Line, a life insurance broker. “Your sales determines how you run the business, and who you can hire. We look at sales revenue on a daily, monthly, and annual basis. I've been in this business for 35 years, 14 as a business owner, and it's the first thing I look at.”
How to calculate sales revenue
To calculate sales revenue, find the number of units sold over a given period and multiply that figure by the per-unit selling price:
Sales Revenue = Number of Units Sold x Selling Price per Unit
It's important to note that there are two different accounting methods for judging when a sale has taken place. Both are entirely valid:
- Accrual basis: Revenue is recognised when it is earned, usually when the work is carried out. For example, if work is contractually agreed in November, carried out in December, invoiced in January, and finally paid in February - the point of sale is booked as December.
- Cash basis: Revenue is recognised only when payment is received - February in our example above.
Number of units sold
The number of units sold is the quantity of products or services sold over a given period. This could be daily, monthly, or annually.
Selling price per unit
The selling price per unit refers to the price at which each unit was sold. Price per unit is typically determined by factors such as production costs, competition, demand, and any desired profit margin.
For example, Protect Line receives a commission for each policy sold by its agents. Each policy sold (unit sold), multiplied by the commission (selling price), equals the sales revenue.
Sales revenue formula considerations
In the UK, while businesses charge VAT, this tax is excluded from the sales revenue calculation. Andrew Brooker, Partner at Begbies, a firm of chartered accountants, says: “A company collects sales taxes such as VAT on behalf of the government. They do not receive it, they pass it on each quarter. It is therefore not part of sales revenue.”
It's also important to note that if a buyer cancels a purchase at a later stage, sales revenue may need to be adjusted retrospectively.
When sales fall through, this can constrain cash flow, which can hurt your business. With an American Express® Business Gold Card, you get up to 54 days to clear your Card balance, giving you more control over your cash flow and when you make your payments¹.
Sales revenue formula example
A hospitality chain operates ten pubs in the Midlands. Each sells beer, wine, spirits, meals, and hosts events. The finance team will calculate sales revenue for each pub by counting the number of pints of each variety of beer, plus wine and spirit sales. It will add to this the revenue generated by the kitchens and the revenue generated by events, such as hosting wedding receptions and birthdays.
The sales revenue of all ten pubs together represents the group sales revenue. The finance team may choose whether to state revenue including taxes (gross) or excluding (net).
Sales Revenue Minus Cost of Goods Sold = Sales Profit.
This is an interim figure, excluding other variables such as depreciation, amortisation, taxes and other factors. It is nevertheless a helpful figure for revealing the operational performance of the company at its core activity.
How to use the sales revenue formula to make better decisions
Leveraging price elasticity of demand
Sales revenue can help to reflect the willingness of customers to pay more for certain goods and services.
If a business inflates its prices and its sales do not fall, sales revenue will increase. This is known as a low price elasticity of demand: prices can be increased without a corresponding drop in sales. Demand is strong, so the company can capitalise on its strong consumer appeal.
By assessing sales revenue data alongside price changes, businesses can gauge optimal pricing levels, potentially increasing their overall profits.
Assessing sales revenue over time
The longer a business calculates and stores sales revenue information, the more useful it can be. For example, looking at sales revenue over years as opposed to months may yield more useful comparisons.
Assessing sales revenue over time can help illustrate changes in consumer demand at given prices, allowing business leaders to forecast how price strategies will impact revenue. Business finance heads may then put together a sales budget for future quarters and years as part of a comprehensive business plan.
Understanding tax impact
Gross and net sales revenue may be compared to reveal the impact of tax changes on consumer demand. If taxes rise, then gross sales revenue will be inflated, assuming all other things are equal. However, net sales revenue would be stable, implying consumers were able to absorb the tax increase without altering demand patterns.
Revenue vs sales revenue
On a profit & loss sheet, revenue is the first item, hence the nickname the top line. Revenue includes all sources of money generated.
Sales revenue is a lesser figure. To find your true sales revenue number, begin with revenue and exclude any non-core activities, such as tax rebates, one-off events, and sales from peripheral activities.
1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
