Total revenue is a crucial metric for any business, as it indicates the amount of money generated from the sales of products and services. It helps to determine whether a company is profitable or incurring losses and, as such, is particularly important for startups. However, understanding and recording total revenue isn’t exactly straightforward and can be particularly confusing if you aren’t well-versed in financial terms. In fact, total revenue is also often synonymous with income, bottom line, performance, and a handful of other terms. This article breaks down and simplifies everything you need to know about total revenue.
Okay, we figured out what it is. But why is this so important? Well, understanding and tracking this metric is crucial for a business because it provides insight into the effectiveness of the company’s offerings and overall financial performance. It is a key indicator of the revenue generated by the company and enables the business owner to make informed decisions for growth and development. To properly assess and develop your business, it is essential to understand and monitor this metric.
Total revenue is typically calculated by multiplying the number of units sold by the price per unit: Number of Products Sold x Price Per Product = Total Revenue
However, you can also use advanced tools like Sturppy to quickly and precisely calculate your total revenue. Simply sum together the amounts you made from each source of revenue to get your total revenue.
Let’s look at our favorite example. Here’s an imaginary firm by the name of Slackr. It offers a piece of software that can be accessed both online and on mobile devices, and it facilitates communication and cooperation across teams working on separate projects. The current working model of Slackr may be viewed over here if you’re interested in following along.
There are three primary sources of income for Slack:
From within Sturppy, you can access Slackr’s revenue streams by clicking the 💰Revenues tab in the left navbar.
Clicking on the Revenues tab displays the revenue streams
The screenshot above shows the Revenues section, where you can see both the total revenue generated by Slackr and its separate revenue streams.
It is crucial that ALL revenue streams be included when computing total revenues. The money coming in from Slackr is simple to understand — different types of customers contribute to each of their three revenue streams. What if, however, the Slackr co-founders decided to offer paid consulting services? If so, would you factor that into the company’s overall revenue? Yes! No source of income is too insignificant to be factored into the overall tally.
The Income Statement for Slackr can be accessed from within Sturppy as an alternative method of viewing Total Revenues. Access the income statement by selecting the Statements option on the left sidebar. From there, click on the Income Statement.
Under the income statement, you can view gross revenue on Sturppy
From within the Income Statement, you’ll want to scroll until you see the Gross Revenue line item. Assuming the Slackr team has included all of their revenue streams, the gross revenue is synonymous with total revenues.
Increasing income while decreasing costs is a common tactic for boosting a company’s bottom line. Your costs may be fixed, or they may have a cap on how high they can go, but your total revenue has limitless potential for growth, like an endless well. From here, it is a matter of how you will tap into that well.
Here are some tips for growing your total revenue:
Each of these strategies is excellent for increasing sales overall. A price increase, smart promotion, and creative incentives for buyers can also help.
Based on the formula laid out in the earlier section, here is a sample of determining your company’s overall revenue if you own a makeup store. Suppose you have 20 face powders that sell for $50 a piece and 10 brushes that sell for $20 each at your store. The sum of twenty times $50 and ten times $20 would give you your entire revenue of $1000 in sales.
(20 x $50) + (10 x $20) = $1000
But what if you charge your customers per hour, say if you own a consulting firm? Then all you need to do is tweak the formula just a little bit to get your final numbers. According to the same formula mentioned above, the number of products sold will be substituted by your total working hours.
To make things simpler, let’s assume you have two firms as clients, and you charge $100 per hour — you worked a total of 10 hours for one and 20 hours for the other. In this case, you need to multiply $100 by 10 and 20 to get your total revenue which will amount to $3000.
Number of Hours Worked x Price Per Hour = Total Revenue
(10 x $100) + (20 x $100) = $3000
Numerous perspectives can be taken on income, even though it is just a single number. In this section, let’s analyze the connection between total and marginal revenue.
As established earlier, revenue is the sum earned by a business from the sale of its products and services. Companies use this indicator to assess how effectively their primary revenue generators produce profits. On the other hand, marginal revenue is directly related to overall revenue — it quantifies the positive or negative impact that offering more products or services has on a company’s bottom line.
It is possible to raise overall revenue as long as marginal revenue is greater than the additional unit’s cost of production. However, if the cost exceeds the marginal revenue, it is prudent to halt manufacturing.
Here is the formula you need to use to figure out your marginal revenue:
Change in the Total Revenue / Change in the Number of Goods Sold = Marginal Revenue
For illustration purposes, consider a hypothetical art shop that specializes in selling oil paintings, where the cost for each piece is $100. The artworks retail for $150, so at $50 in profit for each item, they’re doing quite well.
Let’s say, however, that they do get a custom order. It’s still manufactured for $100, but now it’s being sold for $200. With a profit of $100, this order has a higher margin of profit than others — this is how you can boost your marginal sales.
Hopefully, through this article, you get a clear answer to what total revenue actually entails. Always track your total revenue if you want to know the trajectory of your business — you can do it manually, but it might be time-consuming and prone to errors. Thankfully, software like Sturppy makes the whole process simpler, easier, faster, and more precise. You can view your total revenue and other important metrics at the click of a button, leaving you with more time for other important tasks.
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