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What is Total Revenue and How to Calculate Total Revenue
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Undoubtedly, the success of a business revolves around numbers. Total revenue is just one metric but it provides priceless insights into your selling strategy, business growth, and pricing. It is all the money a company generates from selling goods/services.
Total revenue is equal to the amount of money that a company generates from different activities along with the core activity of its business.
Let’s understand everything in detail.
Definition of Total Revenue
It is the amount of money that a company earns from different activities like providing services, selling products or other miscellaneous activities.
Here’s a simple example.
If you have a lemonade stand, your total revenue would be all the money you get from selling lemonade plus any extra cash that you make from refilling cups or selling cookies alone.
The same goes for bigger companies. If it is a phone company, its revenue would be all the money that is acquired from selling phones + plans + any additional income that they generate from repairing, selling accessories, etc.
Without calculating your total revenue, it is impossible to measure your business growth. Whether you’re pitching investors, creating a financial forecast, or analyzing your current revenue streams, this metric is of utmost importance.
Importance of Total Revenue
This metric is the crux of the financial growth of every business. It is important because it tells the story behind the money flowing into the company’s account providing a vivid picture of the financial health and vitality of every business.
But why’s it important?
- To maintain long-term sustainability and viability of a business.
- Helps in forecasting future outcomes.
- Important for investors as they can gauge information on the company’s stock and its potential growth and profitability.
- Monitoring changes in this metric highlights operational strength and different areas of improvement.
- Guides in strategic decision-making for investment, resource allocation, and other growth opportunities.
- Offers insights into the market position and competitors’ relative performance.
In short, total revenue is useful in determining the core revenue driving operations of any business.
Recommended Read: A Beginner’s Guide to Revenue Models
How to Increase Total Revenue?
The easiest way to improve your revenue is to decrease all your expenses. Set your expenses to a minimum and revenue to the maximum potential. This can be done by:
- Increasing the number of purchases in every transaction
- Increasing the purchase frequency
- Increasing your customers
- Improving customer experience
- Optimizing pricing strategies
- Investing in technology and innovation to stay competitive
- Encouraging cross-selling and up-selling
- Diversifying product or service offerings
All of the above are great ways.
Recommended Read: How to Categorize Different Business Expenses
How To Find Total Revenue?
Calculating this metric is a cakewalk with the help of a simple formula:
Total Revenue = No of products sold x Price per product
For instance, if you have a juice stall and you sell each cup of juice for USD 2 on a sunny day and manage to sell 50 cups in a day. So, to find our revenue, just multiply the price per cup by the number of cups:
Total Revenue = USD 2 x USD 50 = USD 100
The same goes for larger businesses where this metric gives you a bigger picture view of how much money the business is making.
Recommended Read: The Ultimate Guide To Financial Modeling
Common Mistakes:
To make a strong foundation, make sure you avoid the following mistakes:
- To avoid underestimating this metric, make sure all the sale transactions are accounted for.
- Include all sources of income like interest earnings, service fees, etc
- Deduct discounts or returns from the total sales to prevent overestimation
- Use consistent currency values to avoid conversion errors in international transactions specifically.
- Double-check the price per unit and quantity sold to avoid errors in calculating revenue.
- Consider taxes or other fees as they might affect this metric during the financial reporting.
- Keep updating the revenue calculations to reflect the changes in pricing, sales volume, or any other additional income streams.
- Make sure that your total revenue projections align with the financial statements and records to maintain integrity and accuracy.
Recommended Read: How To Calculate Revenue Projections Accurately
Is Your Revenue Calculation Actually Accurate?
Take this quick 60-second diagnostic to uncover common mistakes companies make when calculating total revenue. Don’t worry — no judgment, just clarity.
Total Revenue vs Net Revenue vs Marginal Revenue
Make sure you also know the difference between marginal, total and net revenue.
| Differential Aspect | Total Revenue | Net Revenue | Marginal Revenue |
| Represents | Gross income | Profit after expense deduction | Additional income from miscellaneous sales |
| Definition | Total income from all sales | Income after deducting expenses and taxes | Additional revenue generated from sales |
| Calculation | Price per unit x quantity sold | Total revenue – Cost of goods sold | Change in total revenue / change in quantity sold |
| Usage | Provides a bigger picture of total income generated by sales | Indicates the actual profit generated by the business | Helps in determining the optimal production level and pricing strategy |
| Example | A bakery’s total income from selling pastries | Bakery’s net revenue is the profit after deducting the cost of ingredients and the operating costs | When the bakery increases the production from 100 to 120, the additional revenue generated from selling extra pastries is the marginal revenue. |
Track Revenue Metrics Quickly With CrossVal
By understanding the significance of total revenue, businesses can build a path to financial growth and success. And if you want to accelerate your financial modeling process, you must check out CrossVal. What takes 3 weeks to build on spreadsheets, CrossVal can do in 4 minutes.
CrossVal enables growth focused finance teams to spend less time on manual tasks, generate models in minutes and uncover business insights that were previously hard to see
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