Running a business in this post-digital age requires much more than the general expectations
of creating a product. The survival of your business greatly on your ability to generate and manage its revenue.
About a month ago, Amazon announced a 7% sales growth with a revenue of $116.4 billion for
the first fiscal quarter of 2022. Apple Inc. also reported a $97.3 billion revenue in its financial
results for its second fiscal quarter of 2022. Similarly, many other businesses have also
announced their revenue in the first quarter of 2022.
What determines this financial growth rate? How are these organizations able to measure their
revenue and performance? And what is the significance of these figures on business growth?
If any of these questions popped up in your head while reading this, you are at the right place.
In this article, we will be discussing everything you need to know about gross revenue, net revenue, and its importance to businesses. Also, check out the guides B2B sales, SaaS sales and tech sales.
What is Gross Revenue?
Gross revenue, also known as gross income or the top line, is the total amount of income
earned in a company within a specific period usually on a monthly, quarterly, or yearly basis.
Gross revenue includes all the money generated from business operations through the sales of
products/services, investments, stocks, interests, and every other income-generating source.
Gross revenue excludes expenditures such as the cost of goods sold and other business expenses – for example if you sold $10,000 worth of products and got $2,000 from its
investments, your gross revenue is $12,000 – which is the total amount of money earned.
Importance of Gross Revenue
If you plan to get investors for your business, the gross revenue or gross income presents crucial financial information about your business value and financial health.
Your shareholders and potential investors would want to see your company’s total revenue and cash flow to determine its financial performance.
Calculating your company’s gross revenue will help you achieve the following;
1. Track Sales Performance
Gross revenue measures the gross sales recorded over a given period. Doing this will help you track the sales income and performance to determine whether you are hitting your sales goals or not.
2. Monitoring the Overall Performance and Growth
Evaluate gross revenue within a specific period to monitor your cash flow and total sales. The information generated from your gross revenue will help you make data-driven and
strategic decisions on the best practices to improve your business performance and
growth.
3. Determine Business Value
Gross revenue provides insights into the financial capability and health of the company.
By measuring your gross revenue, you will be able to determine the business value of
your company to secure investments.
4. Identify your high revenue-generating sources
You can expand your gross revenue calculations to present more information about all
your income-generating sources. Doing this will help you identify some of the high-income-generating sources you should improve to generate more income.
5. Secure Loans from Banks, Lenders, and Credit companies
If you plan to apply for a business loan, your gross revenue can show your lender your
business present and future revenue charts to show them that you will be able to repay
the loans.
What is Net Revenue?
Net revenue, otherwise known as net income or the bottom line comes from the gross revenue. it is the deduction of expenditures from the gross revenue.
Net revenue presents the remaining profits of a company after deducting the direct costs of goods sold, taxes, and other costs. Meanwhile, the net sale is the sum of your gross sales minus returns.
For example, if your company sold bags worth $10,000 and production costs $2,000, your net
revenue or net sales is $8,000.
List of Business Expenses
To calculate your net revenue or net sales, or net income, you need to consider the following accounting expenses in your financial statement;
- Cost of production/ cost of goods sold.
- Cost of office supplies, advertising, and marketing.
- Rents.
- Taxes.
- Employee compensations.
- Legal and Administrative fees.
- Software subscriptions, discounts, and returns.
The Difference Between Gross and Net Revenue
Gross revenue and net revenue are two of the most important financial documents used to
present your company’s sales revenue and financial health.
A distinctive difference between gross and net revenue is that the former does not include expenditures such as cost of goods sold, income tax, operating expenses, or other business costs from the revenue’s report while the latter deducts all expenses from the revenue.
Gross revenue focuses on a company’s total earnings and revenue-generation capability, while the net revenue track expenses and business profits.
Gross revenue shows if your company is generating income (gross sales), while net revenue shows if your company is making profits. The insights gotten from these two documents are crucial in developing business growth and development strategies. Check out some finest sales engagement platforms.
How to calculate gross revenue?
Gross revenue is the accumulation of all income generated (gross sales) by a company in a given period. These include all revenues from product sales, investment income, and other business ventures.
The following are some of the basic steps that you should follow when calculating
the gross revenue;
1. Know your audience
Gross revenue is prepared to provide investors, stockholders, and potential leaders of the company with the financial information of the business income-generation capability. Hence, you must be familiar with the recipients of your gross revenue.
2. Identify all the sources of your income
Ensure that you list all the existing sources of your business income and add the total amount earned from those sources in a specific period to calculate your gross revenue.
3. Create a revenue tracking schedule
Define a specific period (reporting period) in which you will consistently track your gross revenue. These could be monthly, quarterly, or annually. Explore some amazing sales outreach tools.
Gross revenue calculation examples
Consider some of these instances when calculating gross revenue. Some of these include the
following examples;
1. Scenario A: Exclude all expenditures
The gross revenue formula excludes all business expenditures. For example, if your company sells training courses for $100 but you spent $20 creating the videos. Your gross revenue is
$100.
2. Scenario B: Exclude all refunds and discounts
It also excludes business losses, refunds, or failed product losses. For
example, if your company sells ten (10) training courses at $100 for each at $1000 but
refunds four (4) students $20 each for video errors. You will still record gross revenue of
$1000.
Gross revenue reporting
Your gross revenue should be in your income statement as a top-line revenue that your investors and recipients can easily see. You must ensure that you list all your sources of income and all products and services sold as credit in your income statement.
Net revenue reporting
Your net revenue reporting should be in your income statement as a bottom-line revenue to present the remaining business income after deducting all costs/expenses.
Gross Revenue FAQs
1. What is the difference between gross revenue and gross profit?
Your gross revenue and gross profit are two different things. Gross revenue is the total
amount of money earned in a given period, while gross profit is the money made after
deducting all expenses.
For example, if you sell a cake for $15 but spend $5 to bake the cake. Your gross revenue is $15 while your gross profit is $10.
2. Can a company record a negative gross revenue?
Gross revenue cannot be negative because it doesn’t include any losses, expenditures,
or refunds. However, net revenue can be negative if your expenses and losses are more than the
income generated.
3. Where should I put my gross revenue in my income statement?
Gross revenue should be on the first line of your income statement. It should be easily
accessible for the recipients. The net revenue appears on the bottom
4. Who needs to know your gross revenue?
Gross revenue is for your stakeholders, potential investors, banks, lenders, and credit
card companies. Gross revenue helps these sets of people to understand your financial
competence to decide if they should invest or lend you funds or not.
Gross revenue tracks the growth and finance of your company over a specific period.
Final words
The gross revenue is one of the vital information included on a company’s income statement as governed by GAAP (generally accepted accounting principles) in the US. It provides important information about a business’s cash flow and financial health. It also helps potential investors, stockholders, and lenders determine if the business deserves their investment or funds.