Revenue is the money a business takes in from selling its goods or services, before any costs come out. The question is usually “how much did we sell?”, and the answer depends on whether you count discounts and refunds.
Gross and net sit side by side, because the gap between them tells you more than either number alone.
How to use the Revenue Calculator#
- Enter units and price. Use the number sold and the list price per unit.
- Add discounts. Enter the average discount given.
- Add returns. Enter the units that were refunded.
The formulas#
Selling 1,200 units at 25 gives gross revenue of 30,000. A 5 percent average discount takes off 1,500. Thirty returned units, refunded at the discounted price of 23.75, take off a further 712.50. Net revenue is 27,787.50.
Revenue isn’t profit#
Revenue is the top line. Profit is what’s left after costs. A business can have rising revenue and still lose money if its costs rise faster. To go from revenue to profit, use the profit calculator, or the margin calculator to see what share of each sale you keep.
Why discounts and refunds matter#
Looking only at gross sales can flatter a business. Heavy discounting and high refund rates both shrink the money you actually keep. Tracking net revenue shows the real picture, and the gap between gross and net is a useful number in itself.
A worked example#
A market trader sells 250 units at ₦4,800 each, gives an average discount of 10 percent and has 12 units returned. Gross revenue is 250 × 4,800 = ₦1,200,000. Discounts take off ₦120,000. The refunds are 12 × 4,800 × 0.9 = ₦51,840. Net revenue is ₦1,028,160, and net units sold are 238. If you reported ₦1,200,000 as your income you would overstate it by ₦171,840.
Revenue, income and cash#
Revenue is the money earned from selling goods or services before costs come off. Accountants may call it turnover or sales. It is not the same as profit, which is what remains after costs, and it is not the same as cash in the bank, because customers may pay late. A business with strong revenue can still run out of cash if it pays suppliers faster than customers pay it. Keep a record of invoices sent and paid, and track both.
Using revenue figures#
Lenders, tax authorities and investors ask for revenue first. Revenue per customer or per employee shows whether you are growing efficiently. If revenue is flat but discounts are rising, you are working harder for the same money. For subscription or ad income, work out the monthly figure and the yearly total, and compare with the profit calculator to see what is left once costs are included.
Recurring revenue, run rate and churn#
If you sell subscriptions, revenue is better measured monthly. 120 subscribers paying ₦5,000 a month make ₦600,000 a month in recurring revenue, and the annual run rate is ₦7,200,000. The run rate is a projection, since customers leave. If 5 percent cancel every month, the average subscriber stays 1 ÷ 0.05 = 20 months, and each one brings in about ₦100,000 over their life. Keeping the same 120 subscribers means winning 6 new ones every month. Track new, lost and active customers separately, because a rising total can hide a growing leak.
Gross, net and when you count it#
Accountants record revenue when it is earned, not when the cash arrives, but many small businesses track what has been paid. Neither is wrong, as long as you are consistent and know which one a figure refers to. Returns and discounts reduce revenue, and so do credit notes. Taxes collected for the government, such as VAT, are not revenue, so leave them out. Use the VAT calculator to separate them.
Frequently asked questions#
Units sold multiplied by the price per unit. For net revenue, subtract discounts and refunds.
In accounting, revenue is sales. Income or profit is what remains after costs.
Usually not. Sales tax or VAT is collected for the government and isn’t counted as revenue.
Gross revenue is before discounts and returns. Net revenue is after them.
No. Revenue is the total money from sales. Profit is what is left after you pay for the goods, wages, rent, marketing, tax and other costs. A business can have high revenue and no profit if its costs are as high. Use the profit calculator to take the next step.
In most Commonwealth countries, including Nigeria, turnover is the everyday word for the total sales of a business in a period, while revenue is the term accountants and the US use. They usually mean the same thing, though some include other income in revenue. Check what your tax form or lender asks for.