Revenue Formula

In business and economics, revenue is one of the most important measures for evaluating the success and progress of any business. Students need to know this important aspect and measurement so that one can eventually calculate your total profit for a business. These trends will be useful for the future reference purpose for the company to know the total profit. This article will explain the concepts of revenue as well as revenue formula with examples. Let us learn this important concept!

What is Revenue?

Revenue in economics refers to the total receipts from the sales of the given quantity of goods and services. It is the total income from the business and generally, we may compute it by multiplying the number of goods sold by the price of the goods. It is very important to note that the concept of revenue in economics usually contains two other key terms.

The first term is the average revenue i.e. AR. It refers to the revenue per unit of the output sold. One can compute it through the division of total revenue by the number of units sold. The second term is the marginal revenue i.e. MR. It is the additional revenue gained from the sale of an additional unit of output. Thus it is the change in total revenue from the sale of one more unit of a good.

Source: wikihow.com

Therefore, Revenue is the total amount of cash that is obtained through the sale of goods or services for the company. For example, everything that any shopkeeper sells in its store, minus any discounts, from the goods will be the revenue. Thus it is also termed as net sales. However, companies are having many other means of incoming cash flow, like investments and other income streams.

When completing the income statement or the profit/loss statement, revenue is the first main objective. After the deduction of all types of expenses, the resulting figure is termed as the revenue. In economics, revenue will be very essential to know the sales of the given quantity of goods and services. The total price obtained from the given source is revenue. Mathematically, we may say that the product of quantity and price will be the revenue.

The Formula for Revenue

Calculating the revenue is comparatively easy. If we know the price of goods and its quantity. Keeping the records of all the transactions is the key to financial management.  Thus, in the most basic form, the revenue formula will be:

Revenue = Quantity × Price

Solved Examples for Revenue Formula

Q.1: What will be the revenue of a newspaper selling shop, if he is selling 600 copies of the newspaper at Rs. 4 per copy?

Solution: As we know that revenue formula is given as:

Revenue = Quantity × Price

Given parameters are,

Quantity = 600

Price = Rs. 4

So, Revenue = 600 × 4

Revenue = Rs. 2400

Thus the revenue will be Rs. 2400.

Q.2: What will be the price of the goods, if a number of sold items is 25 and, total revenue is Rs. 1000?

Solution: As we know that revenue formula is given as:

Revenue = Quantity × Price

Given parameters are,

Revenue = 1000

Quantity = 25

So, \(Price = \frac{Revenue}{Quantity}\)

\(Price = \frac{1000}{25}\)

Price = Rs. 40

Thus the price will be Rs. 40.