# Sales Revenue Definition, Importance, Example, Formula & Overview

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## Definition: Sales Revenue

Sales revenue is the total money made by a company by doing business. Sales revenue is earned by selling products or by rendering of services during a specified period. Sales revenue is the most important parameter in business as it defines the profits or loss, growth or decline & future of an organization.

Sales revenue is also sometimes referred to as the turnover and is used as a key KPI in determining the financial health of a company. Sales revenue in simpler terms is the revenue earned on sales of products or services. A company can have 3 types of revenue- the target revenue, the forecasted revenue and the actual sales revenue.

## Importance of Sales Revenue

Sales revenue is the most important factor in marketing to determine the financial position and business performance of any company. The objective of every company is to increase profits & have a positive growth trend. Sales revenue is calculated by seeing how many products were sold and what price. Sales revenue as compared with competitors helps in evaluating the market share for business. Sales revenue is the end result of any sales management exercise that a company undertakes so as to quantify the business a sales force has to achieve.

The total sales revenue minus the cost of the goods sold will give the gross profit or gross revenue. The gross profit minus the selling & distribution expenses, administrative expenses & other overheads will give the net profit. Sales revenue is also alternatively known as the Net Sales, Net Revenue or simply Sales.

## Formula for Sales Revenue

Sales revenue is the money a company earns by doing business in a certain time period. Sales revenue is dependent on the number of products sold and the value of each product. Mathematically, sales revenue is defined as:

Sales Revenue = Total number of units sold in the year X Price per unit

Annual sales revenue can be calculated by taking units sold in a year, quarterly sales revenue can be calculated by taking units sold in a quarter & henceforth. Thus, if in a period T, the company sells P units of products at a price of Q per unit, then the sales revenue during the period T is P*Q.

If a company has multiple products, then the total sales revenue can be calculated as:

Total Sales Revenue = (Product-1 Sales x Product-1 Price) + (Product-2 Sales x Product-2 Price) + ..

Hence, it is a summation of all unit sales multiplied by their respective product price.

## Examples of Sales Revenue

1. Evaluating sales revenue: A company X has 2 products A & B. Price of product A is \$300 & product B is \$500. A company sold 100,000 units of product A, and 20,000 units of product B. Hence,

Total Sales Revenue = (100,000 x 300) + (20,000 x 500) = \$40 million

2. Evaluating market share: In the year 2019, Company X had sales revenue of \$40 million while company Y had \$25 million & company Z had \$35 million. Hence, based on sales revenue, the market share of company X is 40% in the industry. This gives some idea about the market share & size of each company before you decide to invest in them. Sales revenue and profit are sometimes interchangeably used although they are entirely different concepts.

Hence, this concludes the definition of Sales Revenue along with its overview.

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