What Is Sales Revenue – How to Calculate

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January 17, 2024

I’d like to think I took a page out of T. Pain’s book when I transitioned from sales to sales operations. I’ve closely followed his career from rapper to singer, and just like rap continues to influence T. Pain’s music, my sales background affects how I approach the world of sales ops. In fact, one of the biggest impacts my sales background has on my sales ops success is how I understand sales revenue — not just a top-down view of a key sales metric, but a measure of collaborative effort that secures a company’s success.

From one salesperson to another, here’s my take on sales revenue — what it is, how to calculate it, and how to forecast it to ensure you’re on track to hit targets.

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What is sales revenue?

Sales revenue is the total income your company has brought in from selling its products or services during a specific time period.

The most important components are:

Gross sales revenue: The total amount of money you receive from products or services sales.

Net sales revenue: The total after you’ve subtracted the cost of goods sold, or COGS (production and marketing costs) from the gross sales figure.

Here’s how I think of it: Sales revenue is “the now,” or the state of sales in your current fiscal period. It’s relevant to sales reps, as it’s the number a sales team gets paid commission on, but it’s also relevant to sales leaders as they use it to determine the health of the company and progress toward pre-determined targets.

What should be included (and not included)?

As noted above, sales revenue includes income collected from new sales during a defined fiscal period. There’s an important asterisk to note, however: This includes income from new products and services sold, but not any income that comes from sources other than sales, like interest, dividends, or asset sales. If you have partnerships where money comes in from your referrals, that’s a great revenue stream, but it would not be included in your sales revenue total either. Also not included: future sales income, like a done deal that hasn’t yet been paid for.

Why is sales revenue important?

Tracking your sales revenue gives you an indication of your company’s value (partially determined based on “business booked,” or amount of revenue generated) and how your performance is trending. Those trends can help you frame strategies that keep you growing.

For example:

Is revenue up year over year, or quarter over quarter? If so, can you pinpoint the strategies that made that possible and double down on them?
If you’re down, how much is the shortfall? How does this affect your overarching sales targets and how can you adjust strategies to stay on course?

When you track this metric, especially across different sales categories, you can measure profitability, assess your tactics, plan your operating expenses, and make informed strategic decisions. Maybe you need to drop an underperforming product line, for instance, or put more resources behind an emerging service offering.

For instance, at Copado, we keep an eye on the sales revenue that’s coming from our freemium model (i.e., our basic, non-subscription-based product). It helps us decide whether we should continue investing in building it out or whether it’s beginning to cannibalize users from other products. If the freemium model starts to get too good because we offer too much, we’ll see revenue drop off from users who don’t graduate to the paid version.

Revenue vs. sales revenue

Revenue is the total amount of money your business brings in. Because it covers everything, it can include things like dividends, interest, and referral income — income that doesn’t come from your core business. If you’re in sales, you know that’s not revenue that adds money to your paycheck. Instead, you’re concerned with sales revenue. Your company may get revenue from contract renewals, for instance, but that’s not a new sale. You know that the only way you’ll get paid on renewals is if you upsell the contract to generate net-new sales revenue.

Here’s a simple way to think about the differences:

Revenue = all income that your company generates
Sales revenue = all income generated from the sale of your company’s products or services

Sales revenue formula

To calculate gross sales revenue, you need a defined fiscal period and the following numbers from that period:

For product-based companies: Total number of units sold x average price per unit
For subscription-based companies: Average contract value
For service-based companies: Total number of customers x average price of services

Then, subtract the cost of goods sold to find your net sales revenue:

Gross sales – COGS = Net sales revenue

Revenue example

Let’s say T. Pain started a music software company called Ternt, Inc. Ternt sells two types of software: music creation software and DJ software. It also sells services for continued education training on its software. Finally, it generates income from its partnership with a music streaming company that offers DJ software users access to licensed music.

Let’s gather new sales data from January 1 through March 31 to get started:

1. Core licensing revenue (new licenses sold)

Music creation software: 30,000 sold x $150 each = $4.5 million
DJ software: 20,000 sold x $100 each = $2 million

TOTAL = $6.5 million

2. Training revenue (new services customers)

5% of the customers who purchased the DJ software this quarter also bought a five-hour training course. That’s 5,000 hours at $100 per hour.

TOTAL = $500,000

Now, let’s say Ternt, Inc. also received $500,000 in revenue this quarter from its partnership with the music streaming service. Because it is a revenue stream, partnership income is not included in new sales, so we don’t add it to the equation.

Here’s where we land: $6.5 million in new core licensing sales + $500,000 in new services = $7 million.

Strategies for forecasting revenue

Sales data, including revenue, is crucial for creating accurate forecasts, allowing you to see the future health of your company and adjust strategies as needed to keep growing. Here are three strategies to follow to ensure you get accurate forecasts:

Begin with clean data. When your sales data is up-to-date and clean, you can identify trends that are reliable — and you can do something about. For positive trends, double down on strategies that are working. For troubling trends, dig in to find the root cause and adjust strategies to turn things around.
Forecast for each revenue stream so you can see the best opportunities for maximizing sales in the fiscal period. Have your conversion rates handy for each product or revenue stream. Then, consider the time you have left in the fiscal period for which you’re forecasting, and look at prospects by revenue stream to see which could conceivably close based on conversion rates and where they are in the sales process. Lean into the ones that are likely to close quickly.
Use AI sales tools as another layer on top of your historical data and conversion rates to speed up analysis. These tools, when integrated with your CRM, can add deal-specific evaluations and predictions in real time to power more accurate sales forecasts and keep everything aligned.

Set yourself up for consistent growth

Sales revenue is one of the most important metrics your company can track and learn from. Not only can you gain valuable insights about how your company is doing as a whole, you can use this information to help you evaluate the effectiveness of certain offerings, forecast more accurately, and make actionable plans for the future.