Sales Revenue Formula

Sales Revenue Formula (Table of Contents)

Sales Revenue Formula
Examples of Sales Revenue Formula (With Excel Template)
Sales Revenue Formula Calculator

Sales revenue is the income of the company or the firm that the firm will realize by selling its services or products to the public. The revenue or the sales revenue formula may be simple or complicated as it will depend upon the business. For product sales, this will be calculated by taking the mean or the average price at which goods of the firm are sold and it shall be multiplied by the total number of products that are sold.

Sales Revenue = No. of Units Sold by the Firm * Average Selling Price

Sales Revenue = No. of Customers or Consumers * Average Price of Services

The last formula can be used in the service industry to calculate the sales revenue of the firm. The above formula is used when direct inputs like units and sell value per unit is available, however, when product or service cannot be calculated in that direct way then another way to calculate sales revenue is to add up the cost and find the revenue through the method called absorption costing

Further one can also use margin ratio to calculate sales revenue figure. There can be cases where one knows about profit figures and its margin then the same can be used to calculate the revenue figure.

Examples of Sales Revenue Formula (With Excel Template)

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

You can download this Sales Revenue Formula Excel Template here – Sales Revenue Formula Excel Template

Sales Revenue Formula – Example #1

Let’s take an example to calculate the sales revenue figure for XYZ Ltd which manufactures cloth. Below are the quantity and average selling price available from its production sheet.

Calculate the sales revenue figure for the company.

Solution:

Sales Revenue is calculated using the formula given below

Sales Revenue = No. of Units Sold by the Firm * Average Selling Price

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For readymade cloth:

Sales Revenue of the readymade cloth = 2,500 * 450
Sales Revenue of the readymade cloth = 1,125,000

For plain cloth:

Sales Revenue of the plain cloth = 32,850 * 122
Sales Revenue of the plain cloth = 4,007,700

Total Sales Revenue of the company is calculated as:

Total Sales Revenue = 1,125,000 + 4,007,700
Total Sales Revenue = 5,132,700

Sales Revenue Formula – Example #2

Below are the extracts from 10-k SEC filing of Ak Steels Holding Corporation:

“Flat-rolled steel shipments in 2017 were 5,596,200 tons, a 6% decrease compared to 2016 shipments of 5,936,400 tons. The decrease in shipments was principally driven by a 10% decline in shipments to the automotive market compared to 2016, primarily as a result of reduced North American light vehicle production.

Our average net selling price was $1,022 per flat-rolled steel ton in 2017, a 7% increase from the 2016 average net selling price of $955 per flat-rolled ton. The increases reflect our strategy of producing and selling higher-value carbon, stainless and electrical steels, higher prices on both automotive and spot market sales, and higher surcharges on specialty steel products.”

Calculate the sales revenue figure for the company.

Solution:

Sales Revenue is calculated using the formula given below

Sales Revenue = No. of Units Sold by the Firm * Average Selling Price

For 2017:

Sales Revenue = 5,596,200 * 1022
Sales Revenue = 5,719,316,400

For 2016:

Sales Revenue = 5,936,400 * 955
Sales Revenue = 5,669,262,000

Sales Revenue Formula – Example #3

Below are the extracts from 10-k SEC filing of AQMS Inc:

“Originally, the majority of the lead used in batteries was sourced from primary smelters but in recent decades, secondary lead has grown to become the dominate product used. Industry data shows that six million metric tons of lead were produced in 1995 of which approximately 45% was primary and 55% was from secondary sources. Twenty years later, by 2015, global lead production had increased to approximately 11 million metric tons, of which more than 65% was secondary. Importantly, primary lead production had increased only marginally during this period. This marginal increase is because lead-zinc mine deposits are being depleted across the globe in existing mines. As such, an increasing quantity of primary lead is now the predominate byproduct of zinc mining.

In 2005, secondary lead traded on the LME in a range of $1,000 to $1,200 per metric ton. During 2017, secondary lead traded in a range of approximately $2,000 to $2,600 per metric ton.

Calculate the global sales figure for 2015 assuming the average selling price of $2,300.

Solution:

Sales Revenue is calculated using the formula given below

Sales Revenue = No. of Units Sold by the Firm * Average Selling Price

Sales Revenue = 11,000,000 * $2,300
Sales Revenue = 25,300,000,000

Explanation of the Sales Revenue formula

The sales revenue formula has two important components in it. First one is a quantity which is how much has the firm sold in units and the second component is selling price which is nothing but the product sale price. However, the company sells multiple products at various prices and hence one needs to take an average selling price. But it is not feasible to arrive at these two figures just by prime face looking at financial statements of the company as one needs to arrive at the judgment which becomes subjective in nature. Hence the other way to calculate sales revenue figure is to add up to cost and profit.

Relevance and Uses of Sales Revenue Formula

Revenue is very important and key figure when one is analyzing the financial ratios like gross margin (i.e. revenue-cost of goods sold), operating margin, or gross margin percentage (i.e. gross margin/revenue). Then these ratios are used to analyze how much the firm or the company has left over after allocating and accounting for the cost of the merchandise.

The revenue forms a single line and top line of the income statement and it’s very important that the same is recorded properly after accounting for sales revenue return, taxes etc.

The sales revenue formula will also help in examining the trend in sales revenue over a time which shall enable the company or the business owners to understand their own business much better. Some of the advantages of tracking the sales revenue are like analysis of daily sales revenue trend which aids in understanding if there is any particular pattern in the consumer or customer behavior.