Sales Revenue

What is Sales Revenue?

Sales revenue is the amount of money a business earns from its sales activities. It is calculated by multiplying the total number of sales by the sale price. For example, if a business makes ten sales at $5 each, its total sales revenue would be $50.

Also called top-line revenue, sales revenue is the total amount of income generated from selling goods and services. It’s a key indicator of a company’s financial performance, as it serves as an important measure for analyzing cost-effectiveness, profitability, and growth potential.

According to Generally Accepted Accounting Principles (GAAP), businesses recognize sales revenue during the period the product or service is delivered to the customer. So if a company sells 100 products for $1,000 total but only delivers half of them, the accounting team would recognize $500 in sales revenue on the income statement.

Synonyms

• Gross sales
• Operating revenue
• Top-line revenue

Non-Operating Revenue vs. Sales Revenue: What’s the Difference?

Sales revenue can also be referred to as operating revenue. That means it’s the total income generated from normal business operations (i.e., selling goods and services). Non-operating revenue is income derived from sources that are not related to the main revenue-generating activities of a business.

Examples of non-operating revenue include:

• Interest and dividend payouts from investments
• Proceeds from leasing assets
• Capital gains from asset sales
• Gains and losses on foreign currency transactions
• Losses from equipment downtime, restructuring, and write-offs
• Uninsured losses from natural disasters

Although non-operating revenue paints a complete picture of a company’s revenue streams, it creates unnecessary noise for those who want to understand the performance of their main revenue drivers.

For example, adding non-operating revenue data into the mix when evaluating the success of a new product in its first year would either be misleading or impossible to figure out.

Importance of Calculating Sales Revenue

80% of CFOs agree that metrics related to sales growth are the most important. Put simply, this is because sales revenue helps them understand how much money they’re making. By tracking and monitoring sales revenue, they gain insights into their operations and make informed decisions about their products, services, and pricing models.

Measuring Profits

The profitability question basically answers two questions:

1. “How much money are we making?”
2. “How much money are we spending?”

Dozens of metrics and factors influence the end result of these two questions, but sales revenue is the starting point.

At any point in time, a snapshot of sales revenue tells a business how well its products are selling. Comparing that with the cost of producing and selling those products gives stakeholders a fundamental understanding of the company’s rate of return, or profit margin.

Financial Forecasting

When companies assess their sales revenue from one month/quarter/year to the next, it underscores trends. This is especially important for companies that haven’t reached maturity yet.

Companies with less technology infrastructure use mathematics and historical data to make sales projections or set expectations for future performance and growth. Larger organizations use AI and predictive analytics to turn sales data into actionable insights.

In both cases, predictions are only as accurate as the data used to generate them. Sales revenue over time is the cornerstone piece of information businesses need to make accurate predictions and set realistic financial goals for the future.

Resource Allocation

Once companies know where they are currently and can reasonably predict where they’re headed, they can spend their budget accordingly.

• A company generating and retaining its revenue might want to expand into new markets or invest in research and development.
• One with stabilizing sales revenue might want to reduce its inventory, costs, and overhead expenses to create more efficient processes.
• Declining revenue often indicates an issue with the product or customer experience, the company would need to invest its resources in surveying its customers and fixing the issue.
• Trends like seasonality require businesses to prepare several months in advance by saving resources for low periods and preparing inventory and infrastructure for those of high demand.

Sales revenue is the start of all these decisions. It’s a signpost that tells businesses which direction to go and how fast they can move toward their goals.

Assessing Loan Eligibility

Lending institutions will always look at a company’s financial statements before granting a business loan. They want to know people are actually buying the product. So the first thing they’ll look at is sales revenue.

A lender needs some kind of assurance that the organization will be able to pay back the loan at the end of the borrowing period. Lenders are more likely to grant loans to companies with consistently growing sales revenue. If they’re also profitable companies, that’s a huge plus.

Determining Valuation

Valuation is based on a revenue multiple. Of course, factors besides revenue, such as profits and future growth potential, are taken into consideration. But sales revenue still sets the benchmark for determining how much a business is worth.

Proportionally high (or growing) sales revenue tells investors and acquiring companies that there’s a real use case for the product and it’s working. A company might be unprofitable for any number of reasons. The right sales revenue data could help them overlook that.

Sales Revenue Formula

Sales revenue is the total amount of money generated by a company through the sale of its products or services.

The formula for sales revenue calculations is:

Sales Revenue = Unit Price x Quantity Sold

To better understand the formula and how it works in its entirety, let’s consider a hypothetical marketing agency called “Digital Buzz” that works on contracts with their clients.

Suppose Digital Buzz signs a contract with a client for a 6-month marketing campaign with a total contract value of $50,000. The company also has 5 retainer clients at $10,000 per month each.

In this case, Digital Buzz’s sales revenue equation would look like this:

Sales Revenue = (6-Month Contract Value) + (5 Retainer Clients x $10,000) = $50,000 + ($10,000 x 5) = $50,000 + $50,000 = $100,000

In the case of a company working on contracts, ASC 606 (a revenue recognition standard) comes into play. To properly account for the company’s revenue stream, it can only recognize revenue when it satisfy the contract’s performance obligations.

This means that the $100,000 is not all recognized upfront when the contract is signed, even if the customer pays $50,000 beforehand.

Digital Buzz would recognize its subscription revenue because it can measure the stand-alone selling price (SSP) of the performance obligation. But it would have to wait until the end of the 6-month period to recognize its contract revenue or create a milestone system that allocates specific amounts of revenue per performance obligation.

10 Ways to Increase Sales Revenue

Technically, there are infinite ways to boost revenue from sales activities. A company’s exact revenue strategy will vary wildly depending on the product or service, target audience, and overall market conditions.

That said, here are 10 proven strategies to increase sales revenue:

Improve Marketing Strategies

To attract more customers, companies have to invest in marketing. But marketing alone isn’t enough. They have to take a targeted approach if they want to increase their revenue.

This normally involves:

• Defining and refining the target audience
• Creating content for every stage of the customer journey, including post-sale
• Setting the right sales cadence
• Investing in the right channels to reach the target audience
• Building an email list
• Maintaining a social media presence
• Turning customers into advocates

Improvement isn’t an exact science — companies will have to iterate and experiment. Revenue attribution can help marketing teams understand which channels and tactics are producing the best results.

Launch New Products or Services

Once an organization has a foothold in its respective market, it can start expanding its product catalog with new offerings. Offering a variety of products helps businesses tap into new markets and further dominate existing ones.

In a lot of cases, it’s also critical in helping companies achieve net revenue retention higher than 100%. The chances of converting a current customers is around 60% to 70%, so finding new ways to add value to their current purchase is essential.

Improve Customer Service Quality

94% of customers say high-quality customer service is a driving force behind why they repeatedly purchase from the same brand.

The way companies interact with customers makes a difference. Companies should be training their reps to provide exceptional customer service, and investing in technology like live chat or conversational AI to increase efficiency.

When it comes to experience, convenience is key. Companies need to make their services simple and efficient for customers. A self-service portal for customers to access their accounts, billing information, or request support is typically step one.

Enhance Customer Experience

The customer experience goes far beyond support. Companies should be looking for ways to make the customer journey more enjoyable.

They can accomplish this in a number of ways:

• Loyalty incentives — For example, the first time a customer makes a purchase, they can receive a discount or rewards. Or, when it’s time for renewal, they can receive X% off for committing to a yearly subscription.
• Rewards-based referral programs — Customers receive discounts or credits when they refer new customers to the company.
• Product usability and accessibility — Making products as straightforward as possible helps customers get the most value out of them and drives widespread user adoption.
• Frictionless sales process — Companies should eliminate any unnecessary steps in the buying process. This includes streamlining payment methods and options and reducing the number of pages customers have to go through to complete a transaction.
• Personalization — Customer data should be used for email campaigns with personalized product recommendations and thank-you notes for customers who have purchased a certain product.

Offer Promotions and Discounts

Discounts and promotions are fantastic ways to increase sales volume (and therefore revenue), particularly when it would otherwise suffer.

For example, seasonal businesses (such as Halloween costumes) have to eat the cost of leftover inventory after the surge in demand. Customers see the discount as a good value for something they plan to use in the future.

Discounts also work for companies that are introducing new products or services. Offering a discounted sales price on the new product (i.e., penetration pricing) encourages initial adoption, which in turn drives revenue growth.

Wholesalers and B2B manufacturers offer price breaks for large orders. When buyers order more each time, the company has a higher average order value and more loyal customers in the long run.

With promos and price slashes, remember to be careful how they’re applied. Customers don’t want to feel like they’re being ripped off when a product is full price. And frequent discounting will cause them to perceive the product as having no real value.

Implement Cross-Selling and Upselling

Upselling involves compelling customers to buy a more expensive version of the same product they’re currently looking at, such as a deluxe version or an upgraded model. It’s an easy way to increase average order values and revenue.

Cross-selling involves encouraging customers to purchase additional products or services that complement their current selection, such as an accessory or a complementary service.

Businesses can implement both of these strategies online through product recommendations and popups. In brick and mortar stores, they can train sales reps to offer additional items during checkout.

Customer success teams sell into existing accounts using upsell and cross-sell strategies. With proper training and a data-driven sales approach, they can increase the lifetime value of customers by introducing them to products or services that better fit their needs.

Invest in Employee Training

Sales revenue ultimately comes down to employee performance. Behind every sales, marketing, and customer success effort is a human being. Companies need to invest in their people, and empower them to become more creative problem solvers.

In terms of increasing revenue, training should focus on two areas:

• Faster ramp time — The faster an employee can get up to speed, the faster they’ll reach productivity. In other words, they’ll start making sales sooner.
• Correct processes and execution — It’s the company’s responsibility to make sure their employees use efficient processes, and that they’re executing them properly. This includes everything from how to handle lead qualification to best practices for closing deals.

Digital onboarding materials and knowledge base are beneficial for training employees. But there has to be a hands-on element to it, too. New employees should shadow experienced ones. And they need a mentor to give them feedback on performance.

Expand Into New Markets

It’s rare a growing organization has tapped into its total addressable market. For that matter, it’s rare they even know what it is.

Aside from new product development, there are a lot of ways a company can drive revenue growth:

• Geographical expansion
• Customer segmentation
• Better customer targeting
• Channel sales (e.g., resellers, distributors)
• Increase advertising presence
• Brand awareness campaigns
• Testing new sales territories

Whenever a company sells into a new area, there’s no guarantee sales revenue increases. That’s why it’s a good idea for organizations to (partially) stick to what they know — for example, selling to an industry interrelated to their ICP instead of a new customer base entirely.

Utilize Data Analytics

Without data, it’s impossible to even understand sales revenue. Companies need to track what works and what doesn’t.

Collecting and analyzing customer data helps businesses identify trends, patterns, and correlations in their sales data. They can then use that information to create more accurate forecasts and better-targeted campaigns.

Optimize Pricing Strategies

Assuming consistent sales volume, raising prices is the quickest and most straightforward way to increase sales revenue. But there’s a whole lot more to the price optimization equation.

Briefly, price optimization includes:

• Looking at total operating costs
• Factoring in price elasticity of demand
• Analyzing competitor prices
• Testing out different pricing models and tiers
• Incorporating pricing psychology
• Adjusting prices based on customer segmentation and data analytics

The tricky part about optimizing prices is companies can’t change them too often. Otherwise, customers that bought in at a low price will be upset when the price is higher. And those who purchased at a higher price will feel scammed if the price drops.

Leverage Sales Technology

Technology is the driving force behind most (if not all) of the abovementioned strategies. It’s the enabler for data, insights, automation, and process optimization.

The most important software for a company’s sales stack includes:

• Customer relationship management (CRM)
• Enterprise resource management (ERP)
• Marketing automation
• Sales enablement
• Configure, price, quote (CPQ)

Depending on the type of organization, you may need additional technologies such as ecommerce platforms or customer service (helpdesk) software.

People Also Ask