Revenue is the income a business receives for selling, renting or licensing its goods or services -- plus any investment gains -- during a specific period of time, before subtracting all costs associated with running a business, such as labor, materials and overhead, including taxes. After deducting the total costs from revenue, if a surplus remains, the business has achieved a profit.
Revenue is integral to a business to cover the costs of producing and selling its goods or services. Without it, profit would not exist. Calculate total revenue by multiplying the price per unit by the quantity sold. For example, if a company sells 100 light bulbs at $3 each, the total revenue is $300.
The first level of profit, gross profit, is calculated by subtracting the specific costs to produce a product or provide a service, known as the cost of goods, from revenue. Gross profit demonstrates a company’s ability to produce efficiently. The second group of selling, general and administrative expenses is deducted from gross profit to find the company’s net profit.. For example, if a company’s total revenue for selling light bulbs is $300 and its total cost to produce light bulbs is $50, its gross profit is $250. After deducting another $100 for rent, salaries, advertising and office supplies, the company’s net profit is $150.
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