Net Revenue vs. Net Income: How to Calculate Net Revenue

On financial statements, net revenue shows how much of the gross revenue remains after accounting for costs and losses. Companies can use this remaining balance to pay for business operations and the cost of production. Deducting these expenses helps to calculate profit.

For example, if a car company sells $250,000 worth of cars in a week, its gross revenue is $250,000, which appears on the top line of income statements. The net revenue deducts salesperson commissions, refunds, and sales discounts from that company’s revenue. If those values were to add up to $50,000, the company’s net revenue or sales would therefore be $200,000 over that period.

Net income is the bottom line on a company’s balance sheet, representing the total amount of money left after covering business expenses. Companies use the net revenue to calculate the net income. To calculate net income, subtract business expenses, such as income taxes, overhead fees, depreciation expenses, and the cost of raw materials, from the net revenue.

For example, consider a furniture company with a net revenue of $200,000. If the company spent $30,000 in operating income (direct costs for production, rent, taxes, marketing, and other liabilities), the company’s income statement would show a net income of $170,000.

In business finances, net revenue reporting first relies on gross revenue or gross income. Gross revenue shows a company’s gross sales—in other words, the total revenue it brought in or made in a given period. For example, if a streaming company sells ten subscriptions priced at $20 each daily, the total sales are $200 for that day. To calculate the net revenue, deduct expenditures such as refunds and discounts. If the streaming company had no discounts but had a refund the same day for $20, the company’s net revenue would be $180.

A significant difference between a company’s gross revenue and net revenue shows how well marketing and the sale of goods are performing. Increasing net revenue over an accounting period can signal an increase in the company’s profit and gross margin.

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