What Is Gross Monthly Revenue?
One of the most basic numbers in the finances of a business, gross monthly revenue helps you understand how much money your company has to work with on a short-term basis. If you want to increase your profitability, you either have to get your revenue to grow or use your existing revenue more efficiently.
Monthly revenue is simply your sales for the month -- how much money you earn from doing whatever it is that you're in business to do. If you own a clothing store, it's what the store earns from selling merchandise; if you run a plumbing business, it's the money you earn from doing plumbing jobs. Monthly revenue generally doesn't include money that comes in from things outside your core operations. If your plumbing company had an extra delivery truck, for example, and chose to sell it, the profit from the sale wouldn't be "revenue" because you're not in business to sell trucks. The truck sale is a one-time event that doesn't reflect on your ability to generate revenue.
Gross revenue refers to your total sales before accounting for product returns, discounts and sales allowances. If a shoe store sell a pair of sneakers, the money it earns counts as gross revenue even if the customer later returns the shoes. Or say a plumber bills $200 for a job but offers a 2 percent discount if the customer pays within 10 days. The plumber has $200 in gross revenue, even if the customer claims the discount and pays $196. Sales allowances, meanwhile, are price reductions given to resolver customers' problems without actually issuing a refund. Once you account for returns, discounts and allowances, you're left with net monthly revenue.
In general, the top line of a company's income statement for a month will be its net monthly revenue, not the gross. Top-line revenue is your starting point, the figure from which all expenses get deducted. Net sales revenue is what your company "really" earned, and you calculate your profit margin by dividing profit by net revenue. But gross monthly revenue remains an important metric because it illustrates earning potential beyond your net revenue. If you're losing money to returns, you might need to do a better job of assessing and meeting customer needs. Overly generous discount policies may be costing you money needlessly. If sales allowances are eating up revenue, you may have a problem with the quality of products you're selling, or your inventory handling procedures, or your customer service.
Gross monthly revenue -- and, for that matter, net revenue -- should be viewed through the lens of the accounting method your company uses. If you use accrual accounting, then revenue won't necessarily match up with your cash flow. Your monthly revenue will be what you earned in a given month, not the cash that actually came in from customers. That's something to keep in mind when making out budgets and spending plans. If you use cash-basis accounting, then your net monthly revenue will match your total cash flow.