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Glossario Apparound

This section contains a collection of terms related to the digitization of sales processes, the latest innovations in technology and marketing, each accompanied by an explanation of the meaning or other observations.

How to Calculate Company Revenue?

Revenue is a critical item in any company's balance sheet, representing the amount of money generated from its core activities. However, it goes beyond the simple concept of gross income or gross sales, involving various types, calculation formulas, and challenges to improve it or evaluate business performance.

In this article, we will explore the concept of Company Revenue in all its facets.

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What is Revenue and what types exist?

The first thing to understand is the meaning of revenue. It is, in simple terms, the amount of money obtained by the company through the performance of its core duties. Simplifying: if, for example, a software company obtains ten million from this activity, this amount will be its revenue.

As we anticipated before, it can therefore be considered as a kind of gross income, obviously before deductions and taxes. Its purpose? To offer a broad view of the company's financial health, as well as its position in the market.

Fatturato aziendale di cosa si tratta

All types of revenue to know

However, nothing is as it seems, and indeed, there are different types of revenue that every entrepreneur or manager must absolutely know.

  • Operating Revenue: indicates the amount of money obtained from primary commercial activities, such as product sales. It represents the main stream of income for a company.

  • Non-Operating Revenue: this type of income comes from secondary activities, such as interests, dividends, and profits from asset sales. All those earnings, in short, that are not directly related to the company's core business.

  • Deferred Revenue: this term refers to all earnings earned but not yet received. It is analyzed especially in service companies where billing occurs after the service is delivered.

  • Unearned Revenue: this case occurs when a company receives payment in advance for goods or services that have yet to be delivered. These are revenues recorded as liabilities until the service is completed.

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What are the main sources of company revenue?

After examining the different types of revenue, it is important to understand the main sources from which a company derives its income. In addition to revenues directly related to the sale of core products or services, there may be other sources of income.

  • Sales Revenue: Income derived from the sale of goods, forming the financial basis of many businesses.

  • Service Revenue: Coming from the provision of specialized services, especially typical in consulting sectors.

  • Subscription Revenue: Common in SaaS companies and similar, generating recurring revenues through periodic payments for access to services.

  • Advertising Revenue: Derived from the sale of advertising space, particularly relevant for media companies and digital platforms.

  • Licenses and Royalties: Coming from the granting of rights to intellectual property such as patents or copyrights, common in creative and technological industries.

  • Interests and Dividends: Income from financial investments such as interest on savings accounts or dividends from stock holdings, dependent on investment strategies and market conditions.

These different sources of income contribute to ensuring a solid and diversified financial base for the company.

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Company Revenue Metrics: what are they and why are they important

We have understood what revenue is, what types exist, and what are the main sources of income contributing to total revenue. But the latter is actually a somewhat nebulous concept. It is, in fact, a specific metric that helps analyze and optimize financial performance and income generation strategies.

Each indicator offers valuable insights into specific aspects of income and customer behavior, allowing targeted optimization of business strategies. Here are some key metrics:

  • Total Revenue: indicates the entire amount of income generated by a company, including all sources of income, such as sales, services, and other revenues. It offers an overview of the company's earning capacity.

  • Net Revenue: provides a more detailed analysis of the company's actual earnings because it is obtained by subtracting discounts, returns, and allowances from total revenue. The result reflects the true net income.

  • Gross Revenue: This indicator represents total revenue before any deduction of costs or expenses, providing a raw picture of the company's potential income. It includes all sales and additional incomes generated.

  • Average Revenue Per User (ARPU): companies that base their earnings on subscriptions must consider this metric. ARPU calculates the average income generated per customer or user, providing a clear indication of the value derived from each customer.

  • Monthly Recurring Revenue (MRR): represents the stable and predictable income generated by subscription models month by month. It is essential for evaluating the sustainability of companies relying on recurring payments.

  • Annual Recurring Revenue (ARR): similar to MRR but calculated on an annual basis, it offers a long-term perspective on income generated from subscriptions, facilitating annual financial planning and forecasts.

  • Customer Lifetime Value (CLV or LTV): this metric estimates the total net profit expected from a single customer during their relationship with the company. It is a very important metric for evaluating the long-term value of customer acquisition and retention strategies.

  • Churn Rate: this indicator measures the percentage of customers who cancel their subscriptions in a given period, providing insight into customer satisfaction and the effectiveness of retention efforts.

  • Customer Retention Rate: it is the percentage of customers retained over time, offering an indication of the success of customer loyalty strategies.

  • Conversion Rate: with this metric, the percentage of potential customers is calculated, useful for evaluating the effectiveness of sales and marketing strategies.

  • Sales Growth: measures the percentage increase or decrease in revenue over a specific period.

  • Profit Margins: These include gross, operating, and net margins, representing the portion of revenue that translates into profit after considering various costs and expenses.

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What is the formula to obtain Net Revenue?

Come calcolare il fatturato aziendale

In the context of corporate financial analysis, the Net Revenue Formula, given the importance of this metric, plays a fundamentally important role. It allows obtaining an enlightening perspective on the actual earnings of a company. The formula is expressed as follows:


Net Revenue = Total Revenue − (Discounts + Returns + Allowances)


Let's analyze the various elements.

Total Revenue, as mentioned earlier, represents the overall income that a company generates from all its sources, including sales of products or services, interests, dividends, and other forms of income. It is the gross figure before any expenses or deductions are taken into account.

Discounts refer to price reductions granted to customers, often used as a sales promotion strategy. Clearly, they influence the total income just like returns and allowances. The former represent the amounts refunded to customers when they return purchased goods. It is a common practice in retail and e-commerce and must be subtracted from total sales to accurately reflect actual revenue. Allowances, on the other hand, are reductions in the selling price after the transaction is concluded. They can result from minor defects or customer dissatisfaction and, like returns, reduce actual sales revenue.

These elements, summed up, need to be subtracted from total revenue. Only then the infamous Net Revenue is obtained.

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What is the difference between Revenue and Income?

It may happen to talk about revenue and income as two identical concepts. However, using these terms as synonyms leads to much confusion.

  • Revenue is the amount of money obtained from the commercial operations of a company, including sales, services, and other sources of income.

  • Income, on the other hand, is generally the sum of money remaining after subtracting from earnings all operating expenses, taxes, depreciation, interests, and all other deductions required from total revenue.

If revenue indicates the total potential earnings of a company, income is instead a more important metric because it offers a clearer view of the company's financial status and its actual ability to generate profits.

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Billing Cycle, why is it fundamental in Company Financial Operations

Let's now analyze the so-called Billing Cycle of a company.

It is the process that encompasses all activities related to revenue generation and cash flows. It starts clearly with the first approach to the prospect, then with the potential interested customer. It then proceeds with the promotion of the products or services to be sold and closes the first phase with the sales transaction. From here, a second flow starts which begins with order processing, delivery of goods or services, and issuance of invoices to customers. Then comes the final phase, that of collection, which involves receiving payments from customers and managing any outstanding balances.

Within this billing cycle, all the elements we have analyzed so far are inserted to give further strength and vigor to the growth and financial solidity of the organization.

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What is meant by Revenue Recognition

One of the last elements to know when delving into the revenue universe is the principle of recognition, considered as an essential basis for when and how revenue should be accounted for.

To explain better, this concept is based on recording revenue when it is earned, regardless of when the payment is actually received. For example, if a company provides a service in the month of February but receives payment only in the following month, the revenue will still be recognized in the February accounts.

In doing so, revenue recognition aligns with related expenses and provides a more accurate and transparent financial picture for all stakeholders involved.

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What are the main challenges and difficulties encountered in revenue calculation

The challenges in calculating revenue are various and require a careful approach:

  • Timing of revenue recognition: Deciding whether to recognize it gradually or only upon completion can be difficult.

  • Variable pricing models: Managing multi-level or subscription-based pricing requires advanced tracking systems to monitor each customer's revenue contribution.

  • Refund management: Especially in e-commerce, managing refunds requires accurate accounting processes to rectify tracked transactions.

  • Discounts and allowances: Accounting for discounts and allowances adds complexity to revenue counting, requiring subtraction from gross sales to determine actual revenue.


Addressing these challenges requires robust systems and solid accounting practices. It is crucial for companies to ensure accurate revenue reporting for effective financial management and informed strategic decisions.

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Revenue represents the total income generated from the sales of goods or services before any deductions. Cash flow, on the other hand, indicates the amount of money entering and leaving the company in a given period, reflecting the company's ability to generate cash.

A company can increase its revenue through various strategies, such as expanding the product or service line, entering new markets, improving sales and marketing techniques, optimizing pricing, and increasing customer loyalty.

Recurring revenue is important because it provides a reliable measure of future income and the financial stability of the company. Companies with a high level of recurring revenue can more easily forecast cash flows and make long-term investments with greater confidence.

Seasonal variations can have a significant impact on a company's revenue, depending on the industry. For example, retailers may experience an increase in revenue during the holidays, while tourism businesses may see a peak during the summer months. Recognizing and preparing for these seasonal fluctuations is crucial for financial planning.

Customer returns reduce net revenue because they represent a refund of previously recorded sales. Effectively managing returns, analyzing their causes, and implementing measures to reduce their frequency can help companies maintain revenue and customer satisfaction.

A high churn rate, or abandonment rate, indicates that a significant number of customers are ceasing to use the company's products or services. This can have a negative impact on recurring revenue and long-term financial sustainability, potentially signaling issues with the product, price, or customer satisfaction.

Yes, a company can generate high revenue but have low or zero profits if operating expenses, cost of goods sold, or deductions are high. Operational efficiency and cost management are therefore crucial to turning revenue into profits.

In addition to revenue, it is important to monitor indicators such as net profit margin, cash flow, debt levels, sales growth rate, and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to obtain a comprehensive view of the company's financial health.

Accounting regulations establish when and how revenue should be recognized in financial statements. These rules ensure that revenue is recorded consistently and transparently, enhancing the comparability and reliability of financial information for stakeholders. Companies must adhere to these regulations to avoid reporting errors and potential legal implications.