Sales Formula

Sales Formula (Table of Contents)

• Formula
• Examples
• Calculator

What is Sales Formula?

The term “sales” refers to the revenue recognized in the income statement of a company by selling goods or providing service during a specified period of time. The time frame for capturing sales is usually a month, a quarter or a year. Typically, sales of a company are the first line of time in its income statement. Sales are also known as gross sales which is the aggregate of all receipts and billings realized from sales of goods or services. The formula for sales can be derived by multiplying the number of the units of the goods sold or service provided and the average selling price per unit of that good or service. Mathematically, it is represented as,

Examples of Sales Formula (With Excel Template)

Let’s take an example to understand the calculation of the Sales Formula in a better manner.

Sales Formula – Example #1

Let us take the example of a toy-making company that sold 10 million toys during the year. Out of the total, 3 million toys were sold at an average selling price of $30 per unit, another 4 million toys were sold at an average selling price of $50 per unit and the remaining 3 million toys were sold at an average selling price of $80 per unit. Calculate the sales revenue of the toy-maker during the year.

Solution:

Sales are calculated using the formula given below

Sales = Number of Units Sold * Average Selling Price Per Unit

• Sales = 3,000,000 * $30 + 4,000,000 * $50 + 3,000,000 * $80
• Sales = $530,000,000 or $530 Million

Therefore, the toy-maker generated sales of $530 million during the year.

Sales Formula – Example #2

Let us take the example of a fruit wholesale trader. The trader deals in three fruit segments – apple, orange, and apricot. During the year the fruit wholesaler sold 5 million pounds of apples, 10 million pounds of oranges and 3 million pounds of apricot. The prices of the apples varied in the range of $1.00 per pound to $1.30 per pound, while the prices of oranges were in the range of $1.50 per pound to $1.60 per pound. The prices of apricots oscillated between $3.00 per pound and $3.50 per pound. Calculate the sales revenue of the fruit wholesaler during the year.

Solution:

Average Selling Price Per Pound is Calculated as

• Average Selling Price Per Pound _apple = ($1.00 + $1.30) / 2 = $1.15
• Average selling price per pound _orange = ($1.50 + $1.60) / 2 = $1.55
• Average selling price per pound _apricot = ($3.00 + $3.50) / 2 = $3.25

Sales is calculated using the formula given below

Sales = Number of Units Sold * Average Selling Price Per Unit

• Sales = Number of pounds sold _apple * Average selling price _apple + Number of pounds sold _orange * Average selling price _orange + Number of pounds sold _apricot * Average selling price _apricot
• Sales = 5,000,000 * $1.15 + 10,000,000 * $1.55 + 3,000,000 * $3.25
• Sales = $31,000,000 or $31 Million

Therefore, the fruit wholesale trader sold fruits worth $31 million during the year.

Sales Formula – Example #3

Let us take the example of Apple Inc. to calculate the change in the net selling price of iPhone during the year 2018 vis-à-vis 2017 based on the given information

Solution:

Net Selling Price is calculated using the formula given below

Net Selling Price = Net Sales of iPhone / Number of iPhones sold

For 2018

• Net Selling Price ₂₀₁₈ = Net Sales of iPhone ₂₀₁₈ / Number of iPhones Sold ₂₀₁₈
• Net Selling Price ₂₀₁₈ = $166,699 Million / 217.72 Million
• Net Selling Price ₂₀₁₈ = $765.66

For 2017

• Net Selling Price ₂₀₁₇ = Net Sales of iPhone ₂₀₁₇ / Number of iPhones Sold ₂₀₁₇
• Net Selling Price ₂₀₁₇ = $141,319 Million / 216.76 Million
• Net Selling Price ₂₀₁₇ = $651.96

Change in the Net Selling Price in 2018 vis-à-vis 2017 can be calculated as,

• Change in Net Selling Price = (Net Selling Price ₂₀₁₈ / Net Selling Price ₂₀₁₇ – 1) * 100%
• Change in Net Selling Price = ($765.66 / $651.96 – 1) * 100%
• Change in Net Selling Price = 17.44%

Therefore, the net selling price of the iPhone increased by 17.44% during 2018.

Link: Sales data of iPhone

Explanation

The formula for sales can be derived by using the following steps:

Step 1: Firstly, ascertain the total number of units of the goods sold or service delivered during a specific period of time, say a month, quarter or year.

Step 2: Next, calculate the average selling price per unit of the good or service. The reason for computing the average selling price is that across the period of time the selling price might vary and so it is better to take the average selling price per unit.

Step 3: Finally, the formula for sales can be derived by multiplying the number of units of the goods sold or service delivered and the average selling price per unit of that good or service as shown below.

Sales = Number of Units Sold * Average Selling Price Per Unit

Relevance and Use of Sales Formula

Although profit seems to take the limelight, sales are an equally important measure for any business. In fact, the assessment of sales can result in actionable information which may not be captured by the profitability. One of the major use of sales is that it is predominantly used to examine trends over a period of time that helps in ascertaining the growing operational strength or weakness of a business. Further, analysis of sales trend across a year also provides insight into the seasonality exhibited by the business.

Sales Formula Calculator

You can use the following Sales Formula Calculator

1. Example of Cost of Sales Formula
2. Sales Revenue Formula
3. Examples of Interest Expense
4. How to calculate Net Sales?