Understanding revenue means understanding your business. Calculating sales revenue offers insights for improving your overall sales strategy, sales forecasting, and trend analysis.
Revenue is the most important metric, no matter the sales strategy. Your business could fall into multiple revenue types. So, how do we calculate sales revenue, and more importantly, what can we do with it?
In this post we cover:
- Types of sales revenue
- Benefits of calculating sales revenue
- How to calculate sales revenue
- Sales revenue calculation examples
- Calculating sales revenue from prospecting
Types of Sales Revenue
Product and Service Based Sales Revenue
You can calculate product-based sales revenue by multiplying the volume of units sold by the average price. If you’re in eCommerce selling multiple products, you could segment products into categories first or product type, then start calculations.
You can calculate service-based sales revenue by multiplying the number of customers by the average service price. Businesses can generate revenue from both products and services.
To find service revenue percentage only, divide revenue from services by the total combined revenue and multiply it by 100.
Net Revenue and Gross Revenue
Gross revenue is the total amount gained from sales. Net revenue is the total amount from sales after deducting overhead costs, such as lead generation, manufacturing, or logistics.
Companies often measure net revenue over time to see how sales strategies translate into gross revenue. To calculate net sales, they take gross sales revenue and deduct overhead costs and other factors, like losses, taxes, discounts, or allowances.
Recognized Revenue Vs. Deferred Revenue
Recognized revenue covers realized revenue and earned revenue. Realized revenue means customers receive a product or service, but payment is expected later. Earned revenue means customers received and paid for the goods and services.
Deferred revenue isn’t considered revenue until it becomes “earned.” You don’t include this type of revenue in income statements; instead, you report it as a liability. When income is earned, liability is decreased and recognized as income.
Benefits of Calculating Sales Revenue
Calculating the different types of sales revenue provides data-driven insights on optimizing your business. It helps determine your business’s profitability, valuation, and growth opportunities.
Profitability
Calculating sales revenue ensures you generate enough sustainable revenue to keep your business profitable. Remember, you must account for overhead and acquisition costs.
When your business employs a new lead generation or prospecting strategy, you need to determine whether these are cost-effective ways of generating revenue.
Growth Opportunities
Sales revenue lets you see which aspects of your business are performing well and those that aren’t. You can iterate on performing assets or scale down those struggling to perform.
For example, if cold email marketing generates more conversions than social media ads at lower costs, you could scale up cold outbound campaigns in the following months.
Determine Valuation
Business growth is a clear signal for increased market share. There may be investors or bigger companies that want to acquire your business.
How much your company goes for depends on its valuation. Valuation is determined by multiplying your company’s total revenue minus expenses by an industry multiple.
Sales Revenue Formulas + Examples
Note: calculations must come from your business's core sales activities. Here are the different formulas for calculating sales revenue and examples of their use.
Product-Based Sales Revenue Example
We need the average unit price and the number of units sold to calculate product-based sales revenue. If you sell multiple products, get the average for each type.
Next, calculate the number of units sold for each product type. Finally, multiply the average price by the number of units sold.
The formula is: Sales revenue = units x average price
Let’s say you sell 5,000 units for an average price of $20. That means sales revenue will equal 5,000 units multiplied by $20 or $100,000.
Service-Based Revenue Example
The formula for service-based revenue depends on the type of service provided. For example, your service can charge an hourly rate per project or a retainer fee.
We calculate service-based revenue by calculating the number of customers served and multiplying it by the average service cost. Here’s an example:
Keith runs a gardening service. He has five different tiers to choose from:
- Tier 1: $20
- Tier 2: $50
- Tier 3: $100
- Tier 4: $200
- Tier 5: $500
To get the average service price, Keith adds up the total cost of his services, which is $870, and divides it by 5. The average price becomes $174.
Let’s say Keith had 22 customers last month. That means the service-based revenue becomes 22 x $174 (average service price) = $3828.
However, Keith had to account for overhead costs such as gas and materials, which amounted to $550, which he needed to subtract from the monthly gross sales revenue.
The net sales revenue becomes = $3828 - $550 or $3278.
Recurring Sales Revenue (MRR) Example
To calculate simple recurring sales or monthly recurring revenue (MRR), multiply the number of subscribers by the average revenue per user (ARPU) or MRR = subscribers x ARPU.
Most SaaS companies have this revenue model. For example, if you have 150 subscribers on the $79 monthly plan, the MRR will become 150 x $79 = $11,850.
Calculating Sales Revenue From Prospecting Campaigns
Prospecting campaigns are many businesses' primary source of growth. Learning the revenue generated by these campaigns allows you to scale up and optimize the best-performing ones.
Revenue Per Email
Revenue per email (RPE) is the sales revenue generated from cold outreach campaigns over a period of time. Use the formula: campaign revenue/cold email volume.
RPE also helps you find your best-performing email campaigns. Tools like Instantly give you access to A-Z testing, which helps you find your best-performing emails.
Another key metric to monitor is the return on investment (ROI), which helps you determine the overall profitability of your email campaigns.
To get the ROI percentage, use the formula: (campaign revenue/cold email volume) x 100.
For a clearer picture of email marketing profitability, you should also measure the cost per acquisition (CPA). This is the cost required to convert a lead into a paying customer.
To get the CPA, use the formula: campaign cost/number of converted leads.
Revenue Per Lead
To calculate revenue per lead (RPL), divide the revenue generated by leads by the number of sales-qualified leads (SQLs) in your sales funnel. RPL is more of a macro-level metric focused on monitoring your campaign’s yearly or quarterly performance.
For example, if your company had an annual revenue of $200,000 with 400 SQLs in your sales funnel, your RPL would be $200,000/700 or $500.
Return on Ad Spend
You can calculate the return on ad spend (ROAS) by dividing the revenue from your ad campaigns by the cost. For example, you might spend $2,000 on Facebook ads.
Your campaign generated $10,000 in revenue. Your ROAS would be $10,000/$2,000, or a ratio of 10:2 or 500%.
How to Grow Sales Revenue
Now that we know how to calculate sales revenue, let’s discuss how you can improve it. Here are three strategies you can implement today.
Review Product or Service Pricing
Some markets can be volatile. But with that volatility comes an opportunity to adjust your pricing. For example, new entrants might penetrate your market with lower prices.
Businesses can also raise prices without losing sales. This is often seen in subscription-based services such as Netflix or Spotify, with the latter saying, “We are updating our Premium prices so that we can keep innovating in changing market conditions.”
Segment Leads and Customers
The revenue from your customers and leads varies depending on their quality, making segmentation a crucial step toward improving sales revenue.
Let’s say you’re running a cold outreach campaign with 10,000 leads. Instead of sending the same email, you can apply segmentation strategies, helping you personalize at scale.
Customers also have different average order values (AOVs) and customer lifetime values (CLTVs). Segmentation helps you personalize offerings when you up-sell or cross-sell.
Focus on the Most Profitable Products or Services.
Some products generate more revenue than others. Consider focusing your sales campaigns on your most profitable products or services.
There’s no point in spending your ad budget on products that don’t sell. Monitor key metrics and adjust to optimize ROAS, RPL, or RPE.
Key Takeaways
Calculating sales revenue helps you understand what your business needs to grow sustainably. TLDR:
- Product-based sales revenue: units x average price
- Service-based sales revenue: number of customers served x average service cost
- Recurring sales revenue: number of subscribers x ARPU
- Return on ad spend: campaign revenue/cost of campaign
- Revenue per email: campaign revenue/cold email volume
Cold email outreach is the most cost-effective prospecting strategy for improving sales revenue, especially with the right tools. That’s where Instantly comes in. Start getting more leads and closing more deals today with Instantly.ai.
