Gross revenue is the sum of all sales of goods and services. That is the total invoice value for the goods and services you send to customers. You can calculate it by multiplying the units sold by the selling price per unit.
If you reduce it with items like:
- Sales return
- Sales allowance
You will get net revenue.
- Discount is the amount or percentage deducted from the normal price of the item.
- Sales returns are actual returns by a customer of merchandise he previously bought from a business.
- Sales allowance is when you reduce the original selling price due to damaged goods, late delivery, or quality problems.
Why does it matter
Gross revenue shows your company’s ability to sell. The increase from year to year can occur because:
- Increased units sold
- Increase in price per unit
- The combination of increasing units sold and the price per unit
But you should remember. This number does not indicate how much your company makes a profit. Say, you give significant discounts to increase sales. Discounts mean costs to you, and therefore, you need to consider them.
So, simply, gross revenue does not reflect your quality in marketing the product. You need to consider another aspect, namely, the expense. You successfully make a profit when your revenue grows higher than the expense.
Hence, you can use net profit, gross profit, and net profit to see your ability to make a profit.
How to calculate gross revenue
You can calculate gross revenue by multiplying units sold by price per unit. The formula is as follows:
Gross revenue = Units sold x Price per unit
For example, you sold 100 units of products at a price of Rp5 in 2018. And, your company didn’t offer discounts. The value of your gross revenue was Rp500.
Say, your sales in 2018 did not meet the target. In 2019, you targeted sales of 150 units. To encourage demand, you give a 20% discount. Also, you reduce the price to Rp4 per unit.
The target in 2019 is reached. You generate total gross revenue of IDR 600 (IDR 4 x 150).
But, because a discount is a cost to your revenue, you need to count it. Your net revenue is only Rp. 600 x (100% -20%) = Rp. 480.