Components of Revenue

Revenue or sales stands for the amount of funds a company earns.

This comes from the goods or services the company sells.

This is often called Gross Sales or Total Sales as it’s the total amount of the proceeds.

Net sales are the gross sales minus any returns, discounts, or other price reductions offered to customers such as rebates.

The cost of goods sold is the cost to produce the goods or services.

In a consumer product goods company, it’s the cost to build the product.

In a SaaS business, it includes the cost of servers and software used to provide the service. 

Gross margin is the Net Sales minus the cost of goods sold. 

Gross margin percent is calculated as gross margin over total sales.

This is a key factor for many investors as it represents the amount of funds you have available for sales and marketing.

The higher the gross margin, the greater the capability of the company to sell it.

Finally, there’s the cost of sales.  

These are the costs directly related to selling the product such as commissions.

It’s important to understand these elements in calculating your sales and presenting them to investors. 

 

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