Understanding what revenue is and how to track it is essential for the success of your business. Learn how to calculate this amount and understand what it means!
Good financial management of your business involves controlling several important data that directly affect the achievement of your financial goals. In this sense, you need to have a thorough understanding of what revenue is and how to track it.
After all, this is one of the most important elements for a business — and it determines the potential for achieving its maintenance and growth goals. Therefore, by understanding what revenue represents and how to calculate it, you can use it to make better decisions.
To fully understand this term, which is so common in everyday business life, continue reading and find out what revenue is, the main types and how to find this data in your business!
What is billing and what is it for?
Revenue is the money your business earns from your core business. It is the total amount the company makes from selling its products or service provision.
This way, income is crucial to sustaining the business. After all, it usually forms the basis of the company’s income. Thus, it is from here that resources are freed up for investment in the growth or consolidation of the company, for instance.
Revenue also provides a basis for a firm to measure its tax burden. Thus, it is another major component that characterizes an entity’s corporate financial management and greatly impacts the firms’ performance.
What are the types of billing?
Now that you know what revenue means, it is important to understand that there is not just one type of revenue. Depending on the breakdown of the company’s results, there are different classifications for this indicator.
To understand better, discover the main types of billing and their main characteristics!
Monthly
Monthly sales is calculated over a length of one month. Note that this will be completed in two methods. The most common includes measuring from the primary to the closing day of a specific month.
Another way to measure monthly revenue is to analyze the volume obtained from sales in different months, over a 30-day period. Then you can evaluate the results between the 15th of each month, for example.
Quarterly
Quarterly revenue is calculated every three months and is commonly used to analyze business performance. In addition, the total often serves as the basis for calculating taxes, such as Corporate Income Tax (IRPJ).
This measure can be a way to monitor financial performance over a longer period of time. This way, it is possible to have a clearer view of the measures adopted to generate more profits, for example.
Annual
As the name suggests, annual revenue is the sum of performance over 12 months. Therefore, this analysis helps to understand the evolution of the business over an extended period.
Just like with the monthly result, you can measure it in two ways. The first takes into account the numbers from January to December and indicates the performance in the fiscal year. You can also monitor revenue over the last 12 months, without necessarily starting in January.
Gross
In addition to the types of revenue classified according to the calculation time, there is gross revenue. It is given by the sum of product sales or service provision over the analysis period.
Therefore, gross revenue corresponds to the total amount that the company was able to move upon completing sales operations. It represents the ceiling of the results obtained from the main activities.
Liquid
Net revenue, in turn, disregards sales expenses and taxes charged when conducting business with the customer. In addition, it discounts cancelled and returned sales and chargebacks, which are cancellations of sales made using a card.
Therefore, net revenue subtracts these amounts from the gross amount. This gives you a more realistic view of what you can budget for your business.
Tax
There are two other classifications that can be considered: tax revenue and real revenue. The first is equivalent to the amounts declared to the Federal Revenue Service, Finance Departments and other inspection bodies.
Therefore, this type is the total calculated by the invoices issued in the case of the sale of products or provision of services. The value can be measured in different periods.
Real
Finally, there is the actual revenue, which corresponds to everything that was actually obtained. This difference in classification between actual and fiscal usually exists in the case of sales that occur without an invoice.
In general, it is not permitted to sell products without this document. Therefore, the actual revenue must necessarily be equal to the actual revenue. However, there are a few exceptions that can be considered.
When providing services by an individual microentrepreneur, for example, it is not mandatory to issue a service invoice (NFS) for an individual. Therefore, this is one of the only cases in which the actual revenue may be different from the tax revenue presented.
What is the difference between profit and revenue?
In addition to knowing the types of revenue, it is essential to understand that this metric is not the same as profit. In fact, profit is given by revenue minus the company’s fixed and variable costs.
Therefore, revenue is the initial number, obtained based on the sum of sales results. Expenses such as taxes, fees, commissions, product or service costs, and more are deducted from this total.
Therefore, it is possible to have high revenue and low profits — and vice versa. This performance depends on the composition of the business’ expenses and their impact on the results obtained from sales.
How to calculate company revenue?
Once you understand what revenue is, it is also worth learning how to calculate it. In the case of gross revenue, which is the simplest to calculate, the equation is given by:
Revenue = Cost of product or service x Number of sales
Therefore, the higher the price charged or the sales volume, the higher the revenue obtained. As a result, the business’s financial planning will be optimized, as there will likely be more cash available.