Cash flow is the life of any business. Without money coming in on a regular basis, a company will eventually fold. But for the professionals who run the business, revenue is more complicated than simply looking at a bank balance. Companies have both net and gross revenue, along with money from multiple revenue streams. Calculating revenue often means combining multiple revenue streams into one total.
Calculating Total Revenue
Put simply, calculating revenue means multiplying the price of each product by the total number of units sold. If a boutique priced a blouse at $50 and it sold seven, that puts total gross revenue for that product at $350. This is calculated before any discounts are applied. Total gross revenue does not include any taxes paid for an item. Because sales tax is paid to the government, it is a liability, not income.
Many businesses sell more than one item, though, so often total gross revenue will be the combination of money brought in from the sale of all products. This can be calculated separately, to help show which items are selling better than others, and then added together. Total revenue should not be confused with average revenue, which would multiply the cost of an item by seven, then divide the total by seven to show the average price paid for the item. If a blouse sold for $50 to two customers before going on sale for $25 and sells at that price to an additional five customers, the total would be $50 x 2 + $25 x 5, which comes to $225. You would then divide that number by the total of seven blouses sold, giving an average selling price of $32.14.
Calculating Revenue Growth
For many businesses, year-over-year growth is an important number to track. Investors often want to know this number, as do financial institutions considering a loan. Even if this number isn't requested by an outside party, it can be important for a business's leadership to track its own progression from one year to the next.
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To determine growth from one year to another, simply subtract last year's total gross revenue from this year's. It's important to make sure all numbers are equal. If you calculated gross revenue from January 1 to December 31 last year, do the same this year. You can also calculate year-over-year growth on a particular quarter by subtracting the exact time period last year — January 1 through March 31 for instance — from that time period this year.
Once you have your total gross revenue, you can begin to look at your operating expenses and adjust your budget accordingly. Over time, tracking these numbers can give you the awareness you need to make effective business decisions.