Revenue and Revenue Assumptions

Revenue / Sales

Revenue or Sales is the income generated from normal business operations and includes discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income.

Sales Revenue = Sales Price × Number of Units Sold

Revenue is calculated through the above equation. This can vary for different businesses as larger ones may have multiple streams of revenue that differ from its core operations. For corporate finance, revenue can come in the form of the sale of goods and services, dividends, interest, etc.

Revenue is said to be a top line figure as it appears at the top of a company’s income statement and is the main driver for profits since revenues minus expenses is profit. It is the main indicator to a business to know if it is growing. For a startup, increasing its revenue would be one of the main goals as increasing revenue and decreasing costs would finally lead to profitability.

Revenue is calculated at the end of each reporting cycle, which can be monthly, quarterly or annually.

Proper tracking of revenue and ensuring that it is steadily growing and not decreasing/saturating is important to aid in decision making for company stakeholders as they look to grow the business even further by spending on things like equipment, human capital and even research and development.

MRR (Monthly Recurring Revenue)

Monthly recurring revenue (MRR) is a financial metric that shows the revenue that a company expects to receive monthly from customers for providing them with a product or a service. This is commonly seen in Software as a Service (SaaS) businesses that generate revenue through monthly subscriptions.