There are numerous challenges in growing your business. If you keep hearing about sales revenue analysis, but you’re still not sure what it is. Or if you’re still deciding whether it is that important to go through the hassle of doing one, then you should probably read this. Sales revenue analysis is a must do for every business owner for a reason.
Continue reading to understand what exactly is sales revenue analysis and why you should get on with doing it for your business.
What is Sales Revenue?
Before we get into what Sales Revenue Analysis actually means, it is important to understand what ‘Sales Revenue’ of a company is. I’ll try to make it simple for you.
Sales Revenue (which is also known as just sales, or revenue) is the total income made from the sales of products or services provided by a company. It is calculated at the end of a month or the end of a fiscal year, which is the end of any quarter of the year such as 31st December, 31st March, or 30th September.
To calculate the sales revenue of a company is to simply multiply the total sales of products or services sold by the price of the said product or service as shown in the sales revenue formula below;
(Sales Revenue = Number of Customers x Average Price of Service)
OR
(Sales Revenue = Number of Products Sold x Average Selling Price)
Now it is important to note that there are two types of sales revenue. Rest assured, it is easy to differentiate between the two as shown in the table below:
| Gross Sales Revenue | Net Sales Revenue |
| Gross sales revenue is the total income from the sales of a certain product or service. | Net sales revenue is the total income from the sales of a product or service, minus the returns, allowances, and discounts. |
| For instance, if you managed to sell 10 watches in a month at the total price of 1000$, and the total discount that you gave your customers amounts to 300$, your gross sales revenue is 1000$. | Take the example above, your net sales revenue will be 700$. This is derived from subtracting the discount given, which is 300$ from the sales which is 1000$. |
| The discount is not subtracted to get the gross sales revenue. | The discount must be subtracted from the gross sales revenue. |
| Gross sales revenue represents how well the company is selling their products or services. However, it does not show the ability of the company in generating a profit. | A gross sales revenue must be calculated first to get the net sales revenue. |
What is Sales Revenue Analysis?
Sales revenue analysis (or sales analysis), on the other hand, is an analysis of the income statement which is done over a period of time. It is often done monthly, quarterly,or yearly. Sales revenue analysis is a sales measurement to see the latest performance of a company in comparison with the previous sales analysis, and to evaluate its future performance . By doing a detailed sales analysis, you will be able to identify which product or services is selling well and which are doing less so.
Sales analysis is to be distributed to anyone in a company who can gain form it. Responding to the sales revenue analysis by taking action based on the results is necessary for the growth of a company. There are companies that are no longer doing well simply because they neglect their sales analysis. Here is a scenario of how that happens.
After completing their sales revenue analysis, a milk company discovered that their chocolate milk is selling a lot better compared to their strawberry milk. Yet they discontinued their sales on chocolate milk, and went ahead to sell strawberry milk. Their sales decreased drastically due to this decision.
Doing a Sales Analysis
Preparing a sales revenue analysis might be a bit overwhelming, but it is definitely doable. With practice it will become easier! Even small businesses with little tech could prepare an analysis using Microsoft Excel to keep track of their primary source of income. The image below shows what a sales revenue analysis template looks like. There are also experts out there who offer to do the analysis for your business, if you don’t have the resources to do it.
Sales Revenue Analysis template, from ExcelDataPro.com
Importance of Sales Revenue Analysis
Sales revenue analysis is essential for every businesses for a reason. If you have a business, and still have not gotten into doing this analysis, it is high time to start doing so. This is because there are just too many means to benefit from it and improve your business. If you need convincing, here are some of the importance of this analysis.
Recognize trends
Companies are able to specify the trend of their sales by comparing their current sales trend with the last analysis. Do this analysis periodically. This aids the company in noticing any upwards or downwards sales trend (Wright, 2019). Say, if a company launched a new marketing campaign, this trend displays whether it was effective or not.
Product mix
Sales revenue analysis could be a tool in determining the perfect product mix for a company. For example, the customers’ buying pattern can be derived from the analysis (Shaw, 2019).
Predicting and forecasting
With a revenue analysis, you can forecast the future performance of your company accurately. This allows you to rearrange your resources, if necessary, competently (Schofield, 2019). Besides, this benefits investors as well. Before investing in a company, investors would predict the on the future revenue. They would choose to invest in a company with a steady sales growth (Schmidt, 2021).
Setting an ideal price point
Other than doing a market study, sales analysis could guide companies in achieving the ideal price for a product. This can be done by testing different prices for a product and determine the optimum price through a sales revenue analysis (Schofield, 2019).
Now that you understand what sales revenue analysis is and how this sales measurement tool can prove to be important to your business, the only thing that needs to be done now is to start doing it by collecting the data on your sales of products or services. The ones stated here are only a few of the many benefits a sales analysis can bring when used correctly. By doing a sales revenue analysis, you are already a step closer to a proper revenue management which will lead you to achieving the maximum revenue from your sales.
REFERENCES
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