How much money your business is making can sound like a simple determination, but there’s actually a variety of ways to quantify it. It may be called the bottom line, profit, income, performance, or a number of other terms. Even revenue is divided into total revenue, average revenue, or marginal revenue. The focus of this article will be understanding what total revenue means for your business and how it differs from other ways to determine your business’ financial success.
What is Total Revenue?
Whether your business is selling a product or service, the total revenue equals the full amount of sales. It is calculated by a formula that multiplies the amount sold by the price. This is different from marginal revenue, which measures the increase in total revenue from selling another unit of your business’ service or product. Total revenue is what your business should seek to maximize for its stability and growth.
Why is total revenue important?
How much money your business is bringing in is the starting point for determining its success. Total revenue reveals how much money is generated before any expenses or deductions. So, this metric lets you know how much the business is making from selling its products or services. Understanding and tracking it is key for evaluating and growing your company.
How to Calculate Total Revenue
The components of calculating the total revenue include the price of each of your business’ products or services and the total amount of each sold. Determine this information and continue to track it so you can watch the changes in total revenue over time. Although things like expenses, fees, or how much it costs to run your business are also important to know, they aren’t a part of calculating revenue.
Here's a great guide for calculating total revenue:
Total Revenue Formula
The formula to know your business’ revenue is to multiply the total amount of products or services sold by the price of those products or services. For more in-depth information on your revenue, you can also calculate your average revenue per user. You can use these formulas to create the full picture of your business’ income to improve revenue performance management.
How to Increase Total Revenue
The typical strategy to improve your business’ profit is to decrease expenses and increase revenue. Your expenses may be set or there could be a minimum amount they can reach, but revenue has limitless potential for growth. You can accomplish this by:
- Increasing your number of customers
- Increasing the number of purchases in each transaction, and
- Increasing the frequency of purchases
These are all great ways to boost total revenue. Raising your prices, using effective marketing strategies, and finding ways to incentivize customers will also make a positive impact.
Total Revenue Examples
Retail Store Revenue Example
If your company sells clothing, here’s an example of configuring your total revenue. Let’s say your business sells 10 dresses that each cost $50 and 15 skirts that each cost $20. To calculate the total revenue, you would multiply 10 by $50 and 15 by $20, then add both totals together. The total revenue would be $800.
Number of Products Sold x Price Per Product = Total Revenue
(10 x $50) + (15 x $20) = $800
Consulting Services Revenue Example
If your company sells consulting services, use an hourly rate to calculate revenue. In the formula, think of each hours you worked as the number of "products" sold. If your rate is $50 per hour, and you work with one company for 10 hours and another for 15 hours, multiply your hourly rate by the number hours worked, then add the totals together. The total revenue would be $1250.
Number of Hours Worked x Price Per Hour = Total Revenue
(10 x $50) + (15 x $50) = $1250
Know Your Business’ Total Revenue
Being fully informed about the financial status of your business helps you run it to the best standard possible. Understanding your revenue is important knowledge for judging your performance and growth. Continue to calculate and track it as you expand your business.