Understanding total revenue (TR) and how to calculate it can help businesses determine if the expenses they may incur are aligned with their revenue. This metric shows the amount of money a business makes before expenses and is great to reference when making decisions on behalf of the company.

What is total revenue?

Total or gross revenue combines recurring and non-recurring revenue streams. This revenue represents the income from regular business operations, calculated as the average sales price multiplied by the number of units sold. This top-line figure, referred to as sales on the income statement, provides the basis for deducting costs to determine net income.

Total revenue is essential for analyzing business performance. By comparing total revenue over time, businesses can evaluate the impact of fluctuations in pricing or marketing efforts on sales.

Total revenue is a significant number to consider when setting sales targets, determining product profitability, and identifying growth opportunities. Knowing how to calculate it can come in handy.

Total revenue formula

Calculating total revenue helps businesses understand their sales performance and implement the right pricing strategies. The revenue formula allows companies to estimate the total money earned from their sales.

Businesses can calculate their total revenue by adding their sales or revenue generated during a period and other revenue streams. This information can be found on the income statement under various categories such as sales, revenue, or net sales.

Here’s how to calculate total revenue using the total revenue formula:

Total Revenue = Sales Revenue (Price x Quantity Sold) + Other Revenue Streams

For example, Savannah’s jewelry store sells 1,000 units of a product for $7,500 each.

• Price: $1,000
• Quantity sold: 7,500

Sales revenue = $1,000 x 7,500 = $7,500,000

After calculating Savannah’s jewelry store’s sales revenue, we need to add the other revenue streams found on the income statement.

Here’s an example of possible revenue streams:

• Interest Income: $10,000 from interest on loans and bank deposits
• Dividend Income: $5,000 from investments in stocks where dividends are distributed
• Royalties: $8,000 from licensing intellectual property like patents and trademarks
• Fees and Commissions: $15,000 from providing specific services or facilitating transactions
• Rental Income: $12,000 from renting property and equipment
• Licensing Fees: $7,000 for allowing others to use the company’s brand
• Subscription Fees: $20,000 from customers paying for ongoing services
• Grants and Sponsorships: $25,000 from external sources to support specific activities or projects
• Sales of Assets: $30,000 from selling assets such as equipment or real estate

The company’s additional revenue is $132,000. Add this number to the sales revenue calculated earlier to find Savannah’s jewelry store’s total revenue.

Total revenue = $7,500,000 + $132,000 = $7,632,000

Understanding the total revenue formula and its implications can help businesses make more informed pricing decisions to drive sales and maximize profitability. To save time, you can check the income statement instead of the balance sheet when finding the proper figures to calculate total revenue.

Where is revenue on the balance sheet?

Total revenue isn’t typically calculated from the balance sheet; it’s more commonly derived from the income statement.

The income statement provides a detailed account of a company’s revenues and expenses over a specific period. All revenue is recognized and reported on the income statement when earned, contributing to the calculation of net income.

Separating non-operating income from sales revenue on the income statement is essential to accurately evaluate a business’s performance. Separating sources of income ensures that financial results from core business activities are distinguishable, providing a clear idea of operational efficiency and profitability.

In rare situations, non-operating income can mask poor sales revenue or vice versa. Imagine a company receiving a large enough insurance payout to mask its negative sales revenue. There would be no way to know this by looking at total revenue. Thankfully, separating the income gives a better picture.

Similarly, revenue can also be separated into an asset or a liability, depending on when it’s recognized.

Is revenue an asset?

When a company provides goods or services to a customer on credit, recognizing revenue in the process, it creates accounts receivable (AR), an asset on the balance sheet.

Once the cash is received, it’s then recognized as both revenue and cash. So, while revenue itself is not an asset, the expected future cash flow associated with revenue is represented as an asset on the balance sheet until the payment is received.

Is revenue a liability?

When a company receives payment in advance for goods or services yet to be delivered, it’s documented as deferred revenue.

Deferred revenue is classified as a liability because the company has received payment for products or services that are still pending fulfillment. This means the company owes the customer a product or service in the future, making it a liability until the obligation is completed.

Is revenue an equity?

No, revenue isn’t classified as equity since it’s included in a company’s income and is reported on the income statement.

Equity represents a company’s ownership interest, such as common stock, retained earnings, and additional paid-in capital. Equity is reported on the balance sheet and is a residual interest, representing what remains after deducting liabilities from assets.

How your total revenue impacts the balance sheet

Understanding revenue’s impact on the balance sheet and analyzing revenue trends can provide valuable insights into business operations, market position, growth potential, and overall financial health.

Companies can compare their total revenue with industry benchmarks or competitors’ performance to understand how their business is performing in the market and develop a strong strategy for the future.