What Is Total Revenue Formula? – Definition, How To Calculate, And More

How to calculate the total revenue of a company with total revenue formula?

You can follow the total revenue formula to calculate how much a company has earned within a specific time frame.

However, the total revenue does not deduct the cost incurred during the operation of the business. So, you will need to understand how profitable the company was during that period.

However, if you want a rough and basic idea about your business’s operation, you should consider it.

I have listed how to calculate total revenue using the entire revenue formula in this article.

What Is Total Revenue?

The total revenue reflects a company’s revenue over a specific time from the total number of goods or services sold. This does not mean a specific sale from a specific day or customer.

For example, suppose you have a toy shop and want to calculate the amount your business has generated from selling toys in a month. In that case, you will calculate the total sales or revenue generated that month.

Usually, the total revenue data includes the amount earned from overall sales. But it can also include the amount you earn from lawsuit proceeds, donations, or investments. You can see it this way.

Let’s say the toy shop we discussed generates most of its money from selling toys. But the total revenue of that shop or toy company can also include a secondary source like the money earned as litigation awards. The total revenue can be calculated against a month, a quarter, or a year.

A company’s total revenue provides the owner with the necessary information that helps them reevaluate and improve their sales and marketing strategy and restructure their pricing models. To evaluate the total revenue, you will require the total revenue formula.

Read More: How To Calculate Gross Profit? – Explore With Example

What Is The Total Revenue Formula?

When you see your company’s or business’s total revenue going down, it could very well indicate that the company’s profitability is going down. Based on the gross or total revenue, you need to restructure your sales and marketing initiatives for more proficiency.

So how to use the total revenue formula to evaluate your total revenue? The simple first step would be determining the total number of units you have sold during this time frame. Once you have collected data on the total number sold during a quarter, month, or year, determine the average price of each of the units.

The total revenue generated by the company depends upon two of these values. Once you know your total units sold and the average price for each unit, simply multiply them. Multiplying the total units sold and the average cost per unit will provide you with the total revenue of your company.

Here is a simple total revenue formula that you can follow –

total revenue formula = (average price for each unit sold) x (number of units sold)

This also applies the same way for service-based businesses. In that case, you have to substitute the average price for each unit with the price for each service sold. Also, substitute the number of units with how services you have sold in your business. The total revenue formula, in that case, would be –

total revenue = (average price for services sold) x (total number of services sold)

Example Of Total Revenue Calculation

So, now that you know the total revenue formula, let’s apply it and find out a company’s total revenue.

Let’s imagine that you run a tea stall and are thinking about whether the coming month will be profitable. In that case, you need to calculate your business’s total revenue. But how to do that? Here is how –

First, identify how many cups of tea you sold last month. Let us say that you sold 3000 cups this month. If you charge $5 for each of the cups, then you can calculate the total revenue using the total revenue formula given before.

Total revenue = 3000 x $5

Total revenue = $15000

This is a very small evaluation of total revenue for a small business. However, the process can get more complex as the company becomes larger and has different lines of products priced at different ranges and sold in different quantities.

The same tea stall can have two different cup sizes or two different types of tea sold at different prices. This will complicate the calculator.

If the bigger cup is priced at $9 and has 1000 cups sold, then you will add the total sales derived from this cup with the total sales from the smaller cup that costs $5.

The total revenue, in that case, would be –

$15000 + 1000 x $9 = $9000.

Why Should You Calculate Total Revenue?

Calculating the total revenue of a company is pivotal. Here are some of those crucial reasons –

• The total revenue formula helps you evaluate your ability to sell your business product or services. When you have a higher total revenue compared to that of your competitors, it means that the market is interested in your product offerings.
• Newly founded businesses usually see total revenue as their milestone to success. It is common for startups to operate at a low cost at the start of a financial year. However, in this case, investors can calculate their total revenue to judge their demand in the market and invest accordingly.
• Total revenue does not take costs or expenses into account. This makes the total revenue less reliable data to evaluate a company’s profitability. It is the most basic data regarding the operation of a business within a specific timeframe.
• When evaluating a company’s sales revenue, total revenue only offers basic data, which you should treat according to its value. It is simply a rough guide to your business’s health.

Read More: How To Calculate Net Sales – A Step By Step Guide

Final Words

Once you go through this article, you should understand how to use the total revenue formula to calculate the total revenue of your company. This article contains the basic data on total revenue and how it works. I hope that you have a clear understanding of the topic in discussion.

However, if you need any additional assistance, you can let us know through the comment section below.

Read Also:

• Gross Sales Vs Net Sales: What Is The Difference? How To Use Gross & Net Sales On Business Statements?
• Why Is Personal Financial Management Important?
• The Top Tips For Securing Your Online Finances