Define Revenue: How to Calculate Revenue for a Business

Revenue is the total amount of money a company takes in through gross sales of products. In other words, it’s the company’s earnings before interest and taxes (EBIT). More specifically, it’s the earnings before interest, taxes, depreciation, and amortization (EBITDA).

Companies often represent their total sales (or total revenue) on the top line of all relevant financial statements. This is why you might hear someone call a growth of revenue “top-line growth.” This contrasts with the company’s earnings statement you’ll see at the bottom line of the same documents and which represents “bottom-line growth.”

Depending on the type of business, a business owner might divide revenue into several units. Two main categories of revenue are operating and nonoperating revenue:

1. 1. Operating revenue: The total income from core business sales is operating revenue. This revenue might come from selling products, goods, or services. A clothing store, for example, might look at shorts revenue versus T-shirt revenue versus button-down revenue. Together these values show gross revenue and provide the company with quick metrics to understand where revenue growth is most pronounced and how cash flow works.
2. 2. Nonoperating revenue: Revenue from secondary sources fall under nonoperating revenue. These revenue streams might include the sales of assets, investment income, or interest income. Nonoperating income is generally nonrecurring.

Companies can measure revenue across various periods. For example, an electronics company may calculate the sale of cell phones monthly and note that sales spike around December as people purchase holiday gifts. Studying the ebb and flow of revenue helps the company better strategize its marketing and prices.

Businesses can also measure revenue across brand entities. A media conglomerate with film studios, media and sports networks, and other business entities can measure sales across platforms to see how each entity is performing.

A company’s revenue and income both factor into its balance sheet and can help determine its financial health, but they signify different values. Gross revenue is the amount of money a company makes in sales. This value does not include deductions and is greater than the company’s gross profit.

Gross income is similar to revenue in that it is the total amount of money that comes into a business during a fixed period. At nonprofits, gross income could also include fundraising donations and membership fees. More generally, income refers to revenue minus the cost of doing business: this includes operating expenses, the cost of goods and supplies, income tax, paid labor, and real estate. In this way, net income and net profit are nearly synonyms.

Calculating your sales revenue is straightforward. Your gross revenue totals all of the sales you made. You can write the revenue formula 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.

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