In order for businesses with revenue values to bear fruit, one should understand all the nuances of their calculation, which will be discussed in this material below. In our article you can familiarize yourself in more detail with how to calculate the revenue, which beginners are most likely to make mistakes, as well as what revenue is in general.
general description
Revenue is an indicator of the success of your activities. A decrease or increase in revenue is an indicator of how you are performing the action correctly within the company or in the market. In order for all work with the values of this revenue to bring corresponding results, you should clearly know how to calculate the revenue from the sale of a product.
Sales revenue
Under this concept refers to the cash flow entering the enterprise or company as a result of sales, as well as the sale of services or goods. When answering the question of how to calculate revenue, you should pay attention to the fact that all calculations are made only for a certain period of time.
It is revenue that will determine the credit component of the entire balance sheet of a company or production. So still, how to calculate the revenue? As a rule, this task is carried out by the accounting or commercial department of a particular enterprise. After the revenue calculation, the production business cycle ends. The identification of revenue indicates that its calculation has completed the movement of incoming funds from the moment they are invested in production, as well as the promotion of products or services. Any commercial enterprises finish their activities at the stage of revenue identification.
When compiling accounting or other reports, where there is information about revenue, you should focus on the amount of cash. This is how you can learn how to calculate revenue.
Revenue refers to all cash on which there are reasonable rights. This can be confirmed by a written contract, as well as by other authorized means, including an offer contract. Measurability is an important measure of revenue. Speaking about how to calculate the total revenue, this will be carried out according to certain formulas. This concept does not include the costs of the enterprise, for which reason the accountant or businessman must understand the clear differences between profit and revenue.
Profit in the company is negative, and revenue is never. To obtain data on the latter, you should only have information about the income of the enterprise. To calculate the profit, take into account the amount of expenses and income. In addition, revenue can also be expected - when, for example, a company sells its goods or services in installments. It should also be mentioned that profitability is revealed only on the basis of actual indicators and values.
Revenue Loss Errors
In any business, loss from potential and real customers is inevitable. The only question is what will be the scale of these losses. If the loss reaches 90% or more, then this is a cause for concern, but in no case should not panic. If the buyer left at different stages of sales, then this suggests that weaknesses in their activities should be identified.
Why is revenue calculated?
Before calculating the average revenue, you should pay attention to the fact that this will allow you to analyze the demand for products or services, as well as how many products were sold on the market.Also, during this, you can calculate how much revenue one buyer brought to the business on average. If you compare revenue indicators by various criteria, then you can draw the conclusions necessary during the strategic planning of all trade and production activities. Thus, for example, it is possible to compare different product names in order to decide what exactly is more popular, and then to focus specifically on its sale. Thanks to the analysis of revenue on the basis of the territory, you can determine at which outlet the product is sold better and much more.
After calculating the revenue from sales of products according to a specific formula for each product, you can understand which specific items are most in demand among consumers, after which it will be possible to focus specifically on their purchase or production.
If you periodically monitor and calculate revenue, you can assess the speed of development of the enterprise from an economic point of view. Thanks to this, you can take appropriate measures in time to stabilize and strengthen the position of the company.
Based on the data on revenue, it is possible to carry out competent distribution and budget planning, plan the expenses of the enterprise, and also prevent a negative cash balance. It is imperative to focus on temporary and fixed costs, which include tax fees, payment of utility bills, purchase of raw materials, and the purchase of a new batch of products. You can also correctly form a so-called fund for the payment of wages. The value and revenue indicators are applied in future economic calculations. Revenue indicators are used in a detailed analysis of the profitability of working and equity.
How to calculate revenue?
Formulas help you correctly calculate your revenue. To understand how to calculate revenue, you need to know clearly what types of revenue and calculation methods are. The calculation formula will depend on this. Let's look at how to calculate the average annual revenue.
Counting methods
There are two methods for calculating revenue. These include the following:
- Actual. This takes into account the entire amount of cash that the company received after the sale of products or services. If the goods are sold for sale or with a delay, then this revenue is not fixed in any way, because it is actually never received. Any advance payment and deposit is equal to revenue and is involved in the calculations.
- Accrual revenue. In this case, only potential funds are taken into account. In this case, those finances that in the future will only go to the enterprise, although the products have already been sold, are equated with revenue. This also includes those funds that will be received in future on deferred payment or interest rate on a loan. This method is mainly distributed among large organizations with large turnover.
Types of Revenues
According to the calculation method, 2 types of revenue are distinguished after the sale of products or services. Let's consider them in more detail.
Gross revenue (or gross)
All funds received for a product or service must be considered. If a barter system is used, then the amount in cash equivalent of the product is taken. This may include all state duties, taxes, fees.
This type of revenue will be calculated using the formula TR = OGPn + GP - OGPk, where:
- ОГПн– a value that indicates how much product is left ready for sale at the beginning of a new reporting period.
- GP - a value that indicates how much for a given period of time finished products were produced intended for sale.
- OGPK– a value that indicates how many products remained ready for sale on the last date of this reporting period.
Gross revenue in this case is compiled on the basis of the sum of the directions of the enterprise. This also includes key activities: the sale of products and services or the performance of work. Investment income is also considered part of this gross revenue: the sale of assets that are not included in the company's turnover, the sale of bonds, as well as other valuable documents. The third component is the revenue from the financial work of the enterprise. This should include any income, which is expressed as a percentage, dividends on investments.
Net revenue (or net)
Net revenue represents the difference between gross total revenue, net of tax deductions and excise taxes. Net is reflected in economic and accounting reports. This type of revenue is used to calculate profit losses. Net revenue is the basis for budgeting and enterprise income. If the price of your retail products or services already includes value added taxes and excise taxes, then the net will be equal to the gross revenue. How to calculate the percentage of revenue?
This type of revenue will be calculated by the formula TR = P x Q, where:
- P– indicator of the price per unit of good or service.
- Q– the number of services sold, goods sold.
Types, methods for determining revenue are selected independently. Management decides how to calculate revenue. For these purposes, the company has a special regulatory internal document called the accounting policy of the organization. It indicates in what situations, when, and how revenue should be calculated, how relevant reports should be implemented.
Managers can change methods if necessary, as well as the approach to calculating revenue in various situations.
Conclusion
Revenue is one of the main indicators of the company. This value allows you to analyze how your product, services are in demand among buyers or customers, which are more and which are less.
If you know for sure, as well as analyze the revenue indicator on a long-term basis, you can easily make various effective decisions related to the trade and production process. Taking into account the data about your revenue, you can quite competently manage finances, as well as plan the budget of the entire enterprise.
Speaking about how to calculate the volume of revenue, for the calculation of revenue you need to use those special formulas that were described above.