Net Revenue
What is Net Revenue?
Net Revenue is the amount you keep after subtracting all of your expenses from all your income. For example, if a business had a total income of $200,000 and it spent $150,000 to obtain its income, its Net Revenue would equal $50,000. The calculation for Net Revenue is all income minus all expenses.
Net Revenue = Total Income - Total Expenses
The term "income" refers to "incoming" payments. Examples of income are sales to customers and interest earned from banking investments.
The term "expenses" refers to an "exodus" of property.
Net Revenue is the most important value in accounting because it represents the financial state of a business. If a business has a positive Net Revenue, it is making money in excess of its costs. A positive Net Revenue is referred to as "being in the black". If a business has a zero Net Revenue, it is neither making or losing money. A zero Net Revenue is referred to as "breaking even". If a business has a negative Net Revenue, its expenses are greater than its income and it is losing money. A negative Net Revenue is referred to as "being in the red".
Net Revenue can also be described in terms of Gross Profit after all other expenses.
Net Revenue = Total Gross Profit - Common Expenses
Gross Profit is used to calculate the direct profit on the sale of a particular good or service. For example, if a business sold smoothies and sandwiches, the Gross Profit on smoothies would be the price sold to customers minus the costs of its ingredients. The same is true for a sandwich.
Gross Profit (Smoothies) = Price - Costs
Gross Profit (Sandwiches) = Price - Costs
Total Gross Profit = Smoothie Gross Profit + Sandwich Gross Profit
Common costs, such as rent and insurance, are not included in Gross Profit calculations but are included in the Net Revenue calculation because they are common costs to all products and not just smoothies or sandwiches.
Net Revenue = Total Gross Profit - Common Costs
Let's say a smoothie costs $2 to make and and a sandwich costs $3. The smoothie sells for a price of $6 and the sandwich sells for a price $8.
Gross Profit (Smoothie) = Price - Costs
Gross Profit = $6 - $2
Gross Profit = $4
Gross Profit (Sandwich) = Price - Costs
Gross Profit = $8 - $3
Gross Profit = $5
Let's say a business sells 1,000 of each in a week. Let's calculate Gross and Net Revenue.
Total Gross Profit = Smoothie Gross Profit + Sandwich Gross Profit
Total Gross Profit = ($4 x 1,000) + ($5 x 1,000)
Total Gross Profit = $9,000
Now let's calculate Net Revenue for the week. Let's say the business's rent is $250 per week and its insurance is $25 per week. Its total common costs for the week is $275.
Net Revenue = Total Gross Profit - Common Expenses
Net Revenue = $9,000 - $275
Net Revenue = $8,725
This was a crash course explanation of Net Revenue. If you want to learn more, check out our online lesson where you will learn to measure and compare the three forms of profit: profit margin, gross profit and net profit.
Net Revenue = Total Income - Total Expenses
The term "income" refers to "incoming" payments. Examples of income are sales to customers and interest earned from banking investments.
The term "expenses" refers to an "exodus" of property.
Net Revenue is the most important value in accounting because it represents the financial state of a business. If a business has a positive Net Revenue, it is making money in excess of its costs. A positive Net Revenue is referred to as "being in the black". If a business has a zero Net Revenue, it is neither making or losing money. A zero Net Revenue is referred to as "breaking even". If a business has a negative Net Revenue, its expenses are greater than its income and it is losing money. A negative Net Revenue is referred to as "being in the red".
Net Revenue can also be described in terms of Gross Profit after all other expenses.
Net Revenue = Total Gross Profit - Common Expenses
Gross Profit is used to calculate the direct profit on the sale of a particular good or service. For example, if a business sold smoothies and sandwiches, the Gross Profit on smoothies would be the price sold to customers minus the costs of its ingredients. The same is true for a sandwich.
Gross Profit (Smoothies) = Price - Costs
Gross Profit (Sandwiches) = Price - Costs
Total Gross Profit = Smoothie Gross Profit + Sandwich Gross Profit
Common costs, such as rent and insurance, are not included in Gross Profit calculations but are included in the Net Revenue calculation because they are common costs to all products and not just smoothies or sandwiches.
Net Revenue = Total Gross Profit - Common Costs
Let's say a smoothie costs $2 to make and and a sandwich costs $3. The smoothie sells for a price of $6 and the sandwich sells for a price $8.
Gross Profit (Smoothie) = Price - Costs
Gross Profit = $6 - $2
Gross Profit = $4
Gross Profit (Sandwich) = Price - Costs
Gross Profit = $8 - $3
Gross Profit = $5
Let's say a business sells 1,000 of each in a week. Let's calculate Gross and Net Revenue.
Total Gross Profit = Smoothie Gross Profit + Sandwich Gross Profit
Total Gross Profit = ($4 x 1,000) + ($5 x 1,000)
Total Gross Profit = $9,000
Now let's calculate Net Revenue for the week. Let's say the business's rent is $250 per week and its insurance is $25 per week. Its total common costs for the week is $275.
Net Revenue = Total Gross Profit - Common Expenses
Net Revenue = $9,000 - $275
Net Revenue = $8,725
This was a crash course explanation of Net Revenue. If you want to learn more, check out our online lesson where you will learn to measure and compare the three forms of profit: profit margin, gross profit and net profit.
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