Revenue is calculated by multiplying the number of units sold by the price per unit. If you sold 500 candles at $20 each, your revenue is $10,000. That core formula applies whether you sell physical products, bill by the hour, or charge monthly subscriptions, though the inputs change depending on your business model.
The Basic Revenue Formula
The simplest revenue calculation looks like this:
Revenue = Quantity Sold × Price Per Unit
A coffee shop that sells 200 lattes at $5 each on a Tuesday earns $1,000 in revenue that day. A freelance designer who bills 15 hours at $75 per hour earns $1,125 in revenue for that project. The formula stays the same: count what you sold (or the hours you worked), multiply by the price, and you have your revenue.
If you sell multiple products or services at different prices, calculate revenue for each one separately and add them together. A landscaping company might earn $3,000 from weekly mowing contracts, $1,200 from a one-time tree removal, and $800 from mulch delivery in a single month. Total revenue: $5,000.
Gross Revenue vs. Net Revenue
The number you get from the basic formula is your gross revenue, sometimes called gross sales. It’s the total money earned from sales before subtracting anything. If a shoemaker sells a pair of shoes for $100, gross revenue is $100, even if the shoes cost $40 to make.
Net revenue adjusts that number downward by removing discounts, returns, and allowances. If that same shoemaker offered retailers a 40% discount to clear inventory, the net revenue on those shoes drops to $60. Returns work the same way: if a customer sends the shoes back for a refund, that $100 comes off the top.
Net Revenue = Gross Revenue − Returns − Discounts − Allowances
Net revenue gives you a more accurate picture of what your business actually collected. If you run an e-commerce store with a 15% return rate and offer regular discount codes, the gap between gross and net revenue can be significant. Tracking both helps you understand how much your promotions and returns are really costing you.
One important distinction: neither gross nor net revenue accounts for your operating costs like rent, wages, or materials. Those get subtracted later to determine profit. Revenue is strictly what comes in from sales, not what you keep after expenses.
When Revenue Counts: Cash vs. Accrual
The timing of when you record revenue depends on which accounting method you use. This matters because the same transaction can show up in different months depending on your approach.
With cash basis accounting, you record revenue only when money actually hits your bank account. If you invoice a client on March 15 and they pay on April 3, that revenue belongs to April. This method is simpler and gives you a clear picture of cash on hand, which is why many small businesses and freelancers use it.
With accrual basis accounting, you record revenue when you earn it, meaning when you deliver the product or complete the service, regardless of when the customer pays. That same March 15 invoice counts as March revenue even if the check arrives weeks later. Accrual accounting gives a more accurate view of business activity in any given period, but it can mask cash flow problems if customers are slow to pay. Larger businesses and any company following standard accounting principles typically use the accrual method.
Calculating Recurring Revenue
Subscription businesses, from software companies to gym memberships, track revenue differently because income arrives in predictable, repeating cycles. The key metric is monthly recurring revenue (MRR):
MRR = Total Active Accounts × Average Revenue Per Account
If you have 200 subscribers paying an average of $45 per month, your MRR is $9,000. For customers on annual or quarterly plans, normalize the amount to a monthly figure first. A $600 annual subscription becomes $50 per month ($600 ÷ 12). A $120 quarterly plan becomes $40 per month ($120 ÷ 3).
Only include recurring charges in MRR. One-time fees like setup costs, installation charges, or consulting engagements get excluded because they won’t repeat next month.
To understand how your recurring revenue is changing over time, use the net new MRR formula:
Net New MRR = New MRR + Expansion MRR − Churned MRR
New MRR is income from customers who just signed up. Expansion MRR comes from existing customers who upgraded or added features. Churned MRR is what you lost from cancellations or downgrades. If you gained $2,000 from new customers, $500 from upgrades, and lost $800 to cancellations, your net new MRR is $1,700. This tells you whether your revenue base is growing or shrinking, which the raw MRR number alone won’t reveal.
Revenue for Service Businesses
Service providers who bill by the hour or by the project calculate revenue a bit differently than product sellers, but the logic is the same.
For hourly billing, multiply your billable hours by your hourly rate. A consultant who logs 120 billable hours in a month at $150 per hour earns $18,000 in revenue. Note the word “billable”: time spent on admin, marketing, or proposals doesn’t generate revenue, so the gap between total hours worked and billable hours matters when you’re forecasting.
For project-based work, revenue is the total contract price. A web developer who agrees to build a site for $8,000 records $8,000 in revenue. If the project spans multiple months and you’re using accrual accounting, you might recognize revenue proportionally as you complete milestones rather than all at once.
Putting Revenue in Context
Calculating revenue is the starting point, not the finish line. Revenue tells you how much your business brought in, but it says nothing about whether you’re profitable. A company with $500,000 in annual revenue and $510,000 in expenses is losing money.
Once you have your revenue number, the next useful calculations are straightforward. Subtract the direct cost of producing your goods or services (materials, labor, shipping) and you get gross profit. Subtract all remaining operating expenses (rent, utilities, marketing, salaries) and you reach operating profit. These layers help you see where money is going and where you can improve.
For tracking purposes, calculate revenue consistently over the same time period, whether that’s weekly, monthly, quarterly, or annually. Comparing revenue across identical time frames lets you spot trends, seasonal patterns, and the impact of pricing changes. A monthly revenue spreadsheet that tracks units sold, average price, returns, and discounts gives you everything you need to understand how your top line is moving and why.