Understanding more about revenue practices can help you reach those sweet sales targets.
Customers’ interaction with products and services has changed dramatically, re-thinking the entire purchase funnel for better sales. Businesses must understand how to navigate through the customer-sales processes if they want to improve their chances of conversions and sales success.
What is sales revenue?
Sales revenue is the revenue generated by a business from selling its goods and services before deducting any expenses. Simply put, any amount you receive exclusively for sale falls under sales revenue. It is a direct result of a company’s sales performance management strategies.
Since every business has defined sales cycles, sales revenue is calculated accordingly either in successive quarters or at the end of the financial year.
Revenue vs. sales revenue: key differences
The terms revenue and sales revenue are often used interchangeably but shouldn’t be.
The revenue of a business, i.e., business revenue, is the total amount of money it earns before any deductions on expenses. This amount could be generated through multiple income sources and calculated by adding all incomes (including sales).
Sales revenue or sales, on the other hand, refers to the money generated solely due to selling activities and sales of goods. Calculate revenue on sales by multiplying the total goods/services sold by the price of the good.
Source: G2
Both revenue concepts are based on different parameters; two distinct conditions can arise, which can further help to understand the core difference between the two.
Let’s take a look at these:
1. Revenue can be greater than sales revenue
Business revenue is counted as a result of several revenue-generating sources such as marketing, sales, partnerships, manufacturing, media relations, donations, and subscription/licensing fees. In some cases, this amount will be higher than the revenue generated by the sales teams, as sales revenue comes from a single source.
2. Sales revenue can be greater than revenue
If you’ve had a particularly great sales quarter or year, chances are the revenue received on your sales may sometimes be higher than the business’s total revenue. This mainly happens with companies selling only one product with little to no additional inventory.
It is easy to confuse both of these terms since most revenue often comes from sales due to the transient nature of other income sources. Thus, it is essential to remember that sales revenue should be defined as a subset of business revenue and is not the same thing.
What forms part of a business’s sales revenue?
We’ve established that sales revenue is income generated through sales. But what is included within it?
Any business will usually have two sales revenue streams: gross sales revenue and net sales revenue.
1. Gross sales revenue
It encompasses the total billings received on sales made. This is similar to the gross revenue because it is calculated without deductions on sales returns and allowances. Think of gross sales revenue as the total cost to the company (CTC) when employees are recruited.
2. Net sales revenue
Net sales revenue is a more realistic profit measure as it is the revenue generated after making all deductions. Think of the net sales revenue regarding employees’ “in-hand” salary after several tax subtractions.
Paying attention to these can give you a good idea of how your sales reps are doing and source of the revenue. You can gauge which areas need to be worked on to align with the company’s financial model.
How to forecast sales revenue through income statements?
You’re probably familiar with income statements and their importance for expense management for a business.
Income statements help businesses in deciding whether they can make profits. You can generate profits either by revenue increase, cost reduction, or a combination of both. These factors also reflect the effectiveness of the financial strategies to see if they result in the expected outcomes.
A regular income statement consists of some or all of the following variables:
- Net sales (sales revenue)
- Cost of sales
- Gross income
- Operating expenses
- Operating income
- Other expenses
- Interest expenses
- Pretax income
- Taxes
- Net income
All of these affect a company’s profitability.
Sales revenue is the first item on an income statement; all other items are dependent on the value of the sales revenue. Forecasting the net sales from the report can be done in three different ways:
1. Comparative growth
A simple method of forecasting the sales revenue is modeling it as a growth rate from the previous years. This is helpful as a direct comparison can be drawn to identify how much sales growth has occurred through historical values. An easy way to understand this is to consider the net sales of a year as equal to the year’s sales revenue before it multiplied by one plus the growth rate.
2. Factor in economic metrics
Sales revenue can also be forecasted by accommodating macroeconomic metrics that impact numbers such as the operating country’s gross domestic product (GDP), consumer price index (CPI), employment indicators, etc. Through this method, sales revenue can be predicted to depend on a regression-based formula based on the input of the year’s economic metrics.
3. Quick currency values
The third way of forecasting net sales is by modeling it as a simple dollar (or preferred currency) value. This type is used when there is a need for a quick forecast of sales revenue and is inaccurate in its estimates.
Picking a forecasting method depends on the business requirements and decided timeframes. Regardless of the method chosen, sales revenue forecasting through income statements is an effective way of understanding what is working and what isn’t to plan for the future accordingly.
Four key areas for increasing your business’s sales revenue
Boosting sales revenue is fundamental to an organization’s business and management functions. Here are four main areas to focus on for increasing your sales revenue stream.
1. Goal identification and setting
Defining business objectives is the first step towards boosting your sales revenue cycles. While this may seem like a rudimentary step, goal identification can help plan for the future and achieve short and long-term targets.
A business can only meet goals if teams across the organization are aware of where to go and how to get there. Leveraging proper tools and metrics such as key performance indicators (KPIs), project management software to break down desirable outcomes into actionable items can help measure progress regularly. Setting targets that depend on short periods (monthly, quarterly) is a good starting point for sales reps to stay engaged and on top of their game.
2. Invest in customer communication
Customer insights can prove more valuable than some of the most advanced analytic tools. Businesses can get first-hand information on improving processes by paying attention and spending resources on talking to the person they’re selling to. Collect customer feedback in the form of surveys, referrals, and ask them to review your business online.
Having multiple communication channels (email, text, social media) is an excellent way to gain knowledge about customer experience and indicates you are receptive to all kinds of feedback.
According to PWC, 80% of companies now focus on omnichannel communication strategies to target customers and boost traffic and sales revenue.
3. Upselling your products
Encouraging customers to upgrade to more advanced products (upselling) is another way to increase sales revenue. This works well for customers who are loyal and trust your brand. Upselling also provides a personalized experience that is high on relevance and convenience.
In addition, product upselling increases the average order value from one customer (AOV) and a customer’s lifetime value (CLV), improves overall profit margins, and betters customer satisfaction across the sales cycle.
4. Refine pricing strategy
Understanding product dynamics is key to navigating the sales revenue process. Pricing strategies usually dictate revenue and profit margins and require regular reviewing. Leveraging customer data and factors such as competitor prices and market demand can help decide which price points will drive the most profits.
Perfecting pricing strategies takes time as businesses constantly change their business models, sales goals, and market shifts. Ensure that you’re making data-driven decisions for maximum profitability.
Growing sales revenue takes time and effort
Every business wants to increase its sales revenue, but it’s more straightforward thought than done. Sales revenue is the first element considered when determining a company’s net income. It is the starting point for any company to estimate critical business calculations like earnings per share and cash flow.
Sales revenue drives business decisions and enables them to stay viable in the long run. Having the knowledge to increase revenue through sales promotes growth and financial stability to forecast the future.
