Financial statements are vital to investors. But how do investors use financial statements? Before your meeting, learn what they want to see and why.
April 26, 2021
Business leaders rely on countless metrics to understand and analyze the financial status of their startup or business. Total revenue is one of many, but is especially important for startup founders due to its role in understanding cash flow and determining effectiveness of pricing of goods and services.
In this article, we’ll provide an overview of total revenue, where to find and how to calculate it, and how total revenue can be used by founders looking to maximize their profit margins.
Total revenue is the total amount of income your company generates from sales of goods and services, before expenses are subtracted. The terms total revenue and gross revenue are synonymous and often used interchangeably; some also refer to total revenue as total sales.
Typically found on the first line of your income statement (also known as profit and loss statement, or P&L), total revenue reveals the business’s cash flow, how much money your company is bringing in from sales of products or services. Understanding your company's total revenue is particularly important when evaluating the pricing of your goods or services; the bigger your total revenue, the more money your company is generating.
Total revenue is also a useful number for investors and lenders. A high total revenue can help you to qualify for a loan or attract an investor, as it shows you can generate meaningful cash flow for your business.
Total revenue is distinctly different from net revenue.
Total revenue is revenue before subtracting expenses.
Net revenue is revenue after subtracting expenses, such as cost of goods sold or COGS.
Both total revenue and net revenue can provide you with important information about your business. Total revenue is a useful tool, but it doesn’t give you the full picture view of the overall financial health of your business. Typical startup expenses include employee salaries and benefits, marketing costs, cloud hosting fees, software subscriptions, professional service fees (e.g. legal or accounting), business insurance, marketing or advertising costs, rent and utility bills, office supplies, and more.
To calculate your total revenue, you just need a simple equation:
Total Revenue = Quantity Sold x Price
You need to know the number of items and the price at which you sold them. Multiply those two numbers to get your total revenue from that product. If your company has multiple products, you need to use this equation for each product you sell.
While the total revenue formula is simple, if your business offers several products or services, finding all the numbers you need and performing the calculations can be time consuming.
If you use accounting software to track your sales, you can find your total revenue in a few different locations.
Example: How to Calculate Total Revenue for a SaaS Startup
As an example, let’s calculate the total revenue for a SaaS company that sells a software suite priced at $100 per subscription. If the SaaS company sells an average of 40 subscriptions per month, their monthly total revenue is 40 x 100, which equals $4000.
If the software company is considering offering different pricing options, they can use the total revenue equation to understand if they can still make a profit. This price elasticity can bring in new buyers, but might decrease their profits if they’re not careful.
If the SaaS company lowered their price to $80, but then sold an average of 60 subscriptions per month, they would increase their total revenue to $4800. By making their price more affordable and bringing in more subscribers, the SaaS company increases their total revenue.
You can find historic total revenue numbers for your business on the first line of your income statement. Your income statement will include an overview of all your revenue streams and combine them to get your total revenue.
Your accounting software can also show you your total revenue and operating expenses for any given period you need to assess, such as last quarter, last year, or year-to-date.
See also: How To Read a Profit & Loss Statement
Total revenue might not tell the complete story, but it can be a useful tool for understanding the big picture view of your business. When you compare total revenue to total expenses, you can get a quick-glance understanding of your business’s profitability.
You can also use total revenue to calculate revenue growth. Compare this year’s total revenue to last year’s to see if your revenue increased. Revenue growth shows you that your company is generating more business. More business can often mean more expenses, so this growth may not be clear when looking at your net revenue.
Lastly, total revenue can be useful when planning for the future. You can use the simple total revenue equation to understand how a price increase or offering a discount will affect your business’s bottom line.
While calculating your total revenue requires only a simple equation, if you have several products and services, this can quickly get complicated. For most startup founders, working with an experienced accounting team is the only reliable way to properly manage revenue and keep your books accurate, compliant, and up to date.
At Zeni, our team of experts have decades of experience working with startups and understand what it takes to help a startup’s finances to run smoothly—including proper revenue tracking, budgeting, and pricing structures.
Zeni is a full-service finance firm that can handle all your company’s bookkeeping, accounting, tax, and CFO functions with a combination of AI-powered efficiency and human expertise. Our team takes the hassle of maintaining your financial records off your hands and tracks all your revenue and expenses with GAAP-compliant methods that are built to scale. Plus, with the Zeni dashboard, you gain instant access to key metrics like your monthly revenue, OPEX, and cash flow, so you can review your financial health at a glance.