Our Five Key Points:
- Net revenue is total revenue minus costs of goods sold.
- The net revenue formula is only effective when all costs relating to producing and selling your goods or services are taken into account.
- Having an accurate net revenue allows you to create impactful financial statements and show both your gross and net profits as a business.
- Sourcing all your revenue and sales data makes your profit reports more accurate and more valuable to attract investors.
- Using Integrate.io to collate your business data ensures your net revenue figures are as accurate as possible.
Starting a small business is an exciting journey, but there are so many metrics to consider, especially when evaluating your success or demonstrating that success to stakeholders. Business finance is about so much more than the number of sales you make.
Within the startup world, it’s common to hear of e-commerce companies implying that they are enjoying financial growth from the get-go. Yet most of the time, these claims are not backed up by convincing numbers or financial data, and they are really just another type of marketing gimmick. But what if you could actually verify your revenue and cash flow, impressing potential investors and customers alike? The net revenue formula could be the key to an accurate balance sheet for your business.
Table of Contents
- Net Revenue Formula Explained
- Factors That Impact the Net Revenue Formula
- Why the Net Revenue Formula Is Important
- Improve Your Net Revenue Formula with Integrate.io
Net Revenue Formula Explained
Your net revenue is how much money your business is actually making — in other words, your bottom line. Net revenue may also be called gross profit or net income.
You’ll find a lot of information online about calculating your total revenue. Your total revenue is also called your gross revenue, and it’s how much money you have coming into your business from goods or services sold. Total revenue does not take into account the cost of producing or providing those goods, which is why it can be a misleading figure. As mentioned in our intro, companies can use their total earnings to make it look like they’re more successful than they really are. Major tech giants can boast over $800,000 per minute in revenue, but that’s just money coming in. Once costs are taken into account, that figure will drop dramatically. The figures are real — but they don’t tell the whole story.
For example, according to Investopedia, an iPhone can cost up to $1,449 for a consumer to buy. One hundred iPhones would bring in total revenue of $144,900. But the iPhone costs $570 to make, including components and labor. So, that makes the net revenue on a single unit $879, and on 100 units, $87,900. That’s quite a drop.
To put the revenue calculations in simple terms:
- Total revenue = unit cost x number of units sold
- Net revenue = (unit cost – cost of goods sold) x number of units sold or total revenue – costs and returns
It makes more sense for e-commerce businesses to use the net revenue formula based on their total revenue because it factors in costs after the sale, such as returns, refunds, or even dealing with a customer complaint. This makes it more accurate than simply subtracting the cost to produce from the unit price. Having an accurate net revenue figure helps businesses better understand their profit margin. It can even help you calculate your net profit, which is your total profit minus further operating expenses, for even more accurate financial statements.
Factors That Impact the Net Revenue Formula
Savvy business owners and entrepreneurs may have noticed that the cost price discussed above only includes labor and components, but of course, there are many other business expenses involved in selling a product. Your particular business plan may include:
- Marketing costs
- Product testing
- Commissions for partners or affiliates
- Incentives such as discounts or coupons
- Cost for SaaS that aid in e-commerce, such as sales platforms or accounting software
Ideally, the net revenue formula should only include costs that directly relate to the sales and marketing of your goods or services. You don’t need to include the cost of the copy paper in your office, for example! With these factors included, the formula becomes a little less simple:
- Net revenue = total revenue – (returns + discounts + commissions + other costs)
It’s clear, then, that to make sure your net revenue formula is as accurate as possible, you need access to all the cogs in the sales machine — i.e., every bit of data relating to your sales, via a reliable data integration platform like Integrate.io.
Integrate.io is the data integration platform built for e-commerce, with multiple product integrations ideal for your e-commerce store.
Why the Net Revenue Formula Is Important
Having accurate data to calculate your net revenue is vital for demonstrating how profitable you are as a company. Profit is the main goal for any business, online or offline. E-commerce retailers benefit from the lower overheads of no stores to run and often fewer employees to pay. But, there are still many costs to consider, such as:
- Logistics, which may involve partnering with a third-party logistics (3PL) expert
- Dealing with seasonal peaks such as holidays
- Supply chain issues — a constant problem since the pandemic
- Fluctuating costs in raw materials
Demonstrating that you are profitable despite these often challenging factors could give your business the edge it needs when drawing in investors. This is particularly important for startups that are, perhaps, just past the Series A funding stage or moving into the early stage of Series B funding. A high net revenue can help you attract angel investors ready to part with more significant amounts of funding.
Impressing potential stakeholders with a net revenue that’s as accurate as possible thanks to fully integrated business data that shows consistent business growth could be what sets you apart from your competitors. Integrate.io helps you collate all that data for analysis by your business intelligence tools, but also to plug straight into your net revenue formula and easily chart your profit progress as a business.
Improve Your Net Revenue Formula with Integrate.io
Have you got all the business data you need to make your net revenue formula results as accurate as possible? If you’ve realized that there may be more data on costs and deductions than your business takes into account, Integrate.io could be the solution you need. This cloud-based suite of services includes a new low-code or no-code ETL platform that empowers users to quickly create data pipelines to a range of data sources.
Find all your relevant data from Salesforce, Shopify, BigCommerce, or even Facebook Ads, and draw it all into your data warehouse for analysis. In addition to dozens of pre-built connections right out of the box, there’s also a REST API function for practically limitless data connections. Integrate.io also includes a very fast change data capture (CDC) platform, enabling the use of automation to update data as soon as changes are made without constantly extracting the historical load. This boosts efficiency and prevents your data warehouse from becoming overloaded and sluggish. The CDC platform connects effortlessly with Snowflake and Redshift and even has Amazon S3 bucket functionality.
Enjoy multidirectional data flow with reverse ETL, updating your CRM as needed for deep e-commerce capabilities. Most importantly, make sure that every aspect of data on sales and costs is right at your fingertips, so you can use that net revenue formula to show your stakeholders exactly how well you’re performing with a thoroughly accurate income statement. Schedule a demo today to find out more.