How to Calculate Net Revenue
Net revenue is a common metric used by large corporations
and small business owners to assess the financial health of their company's
sales revenue and profit margins. Learn how to compute net revenue.
What Is Net Revenue?
Net revenue on financial statements indicates how much of
the gross revenue remains after deducting costs and losses. Companies can use
the remaining balance to cover business operations and production costs.
Deducting these costs aids in calculating profit.
For example, if a car company sells $250,000 worth of cars
in a week, its gross revenue is $250,000, which appears on the income
statement's top line. Net revenue is calculated by deducting salesperson
commissions, refunds, and sales discounts from the company's total revenue. If
those figures add up to $50,000, the company's net revenue or sales for that
time period would be $200,000
Net Revenue vs. Net Income
Net income is the bottom line on a company's balance sheet,
representing the total amount of money remaining after business expenses have
been paid. Net revenue is used by businesses to calculate net income. To
calculate net income, subtract business expenses from net revenue, such as
income taxes, overhead fees, depreciation expenses, and raw material costs.
Consider a furniture company that has a net revenue of
$200,000. If the company spent $30,000 in operating income (direct costs for
production, rent, taxes, marketing, and other liabilities), the net income
would be $170,000 on the income statement.
Net Revenue vs. Gross Revenue
Net revenue reporting in business finances begins with gross
revenue or gross income. Gross revenue represents a company's gross sales, or
the total revenue it brought in or made during a given period. For example, if
a streaming service sells ten subscriptions at $20 each on a given day, the
total sales for that day are $200. Deduct expenditures such as refunds and
discounts to calculate net revenue. If the streaming service offered no
discounts but issued a $20 refund the same day, the net revenue would be $180.
A significant difference between a company's gross and net
revenue demonstrates how well marketing and sales are performing. Increasing
net revenue over an accounting period can indicate an increase in profit and
gross margin for the company.