Revenue is a dollar figure that indicates how much money a company has earned by selling its products and services in a given period (a week, month, quarter or year).
- Gross revenue is calculated by multiplying every unit of product or service sold by its respective unit selling price.
- Net revenue is calculated by subtracting purchase discounts and allowances and product returns from the gross revenue.
Revenue is different from cash because in many cases customers do not pay for the products or services at the time of purchase.
Revenue is used to calculate profitability ratios such as gross margin, net margin and net profit margin to help managers understand how expenses affect a company’s profitability. These ratios are expressed as a percentage of the company’s revenue.
More about revenue
The excerpt below shows how gross revenue is calculated and how it is affected by purchase discounts and allowances. In this case, ABC Co. sells 10,000 units of its product at $10 each, with a 10% purchase discount and a 2% purchase allowance for customers.