How to Calculate Revenue for a Business

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The revenue of a company reports its net sales, or the amount reflected in the total sale of goods. Learn how to categorize income and calculate gross and net revenue for businesses.


Revenue vs. Income

Revenue and income are both factors on a company's balance sheet and can help determine its financial health, but they represent different values. The amount of money a company makes in sales is referred to as its gross revenue. This figure excludes deductions and is higher than the company's gross profit.

Gross income is similar to revenue in that it is the total amount of money that enters a business over a specific time period. Gross income at non-profits may also include fundraising donations and membership fees. In a broader sense, income is revenue less the cost of doing business, which includes operating expenses, the cost of goods and supplies, income tax, paid labor, and real estate. Net income and net profit are nearly synonymous in this context.


How to Calculate Revenue

It is simple to calculate your sales revenue. Your gross revenue is the sum of all of your sales. The revenue formula can be written as follows:

Gross revenue = (Item 1 quantity sold x Item 1 price) + (Item 2 quantity sold x Item 2 price) + (Item 3 quantity sold + Item 3 price) and so on.

Net revenue, then, takes into account other factors:

Net revenue = gross revenue – discounts – allowances – returns.


Revenue Definition

Revenue is the total amount of money earned by a company from product sales. In other words, it is the earnings before interest and taxes of the company (EBIT). It is the earnings before interest, taxes, depreciation, and amortization (EBITDA).

On the top line of all relevant financial statements, companies frequently represent their total sales (or total revenue). This is why revenue growth is sometimes referred to as "top-line growth." This is in contrast to the company's earnings statement, which can be found at the bottom of the same documents and represents "bottom-line growth."


2 Types of Revenue

A business owner may divide revenue into several units depending on the type of business. There are two types of revenue: operating revenue and nonoperating revenue.

1. Operating revenue: Operating revenue is the total income from core business sales. This revenue could be generated by selling products, goods, or services. For example, a clothing store might compare shorts revenue to T-shirt revenue to button-down revenue. These values, when added together, represent gross revenue and provide the company with quick metrics for understanding where revenue growth is most pronounced and how cash flow works.

2. Nonoperating revenue: Nonoperating revenue includes revenue from secondary sources. Asset sales, investment income, and interest income are examples of revenue streams. Nonrecurring income is typically nonrecurring.

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