What is Gross Revenue and Why Does It Matter

Your sales team is landing new accounts and closing deals. Money is flowing in. Hooray! Things are looking good. But is that your only source of income? Gross revenue measures the total amount earned across the business, so it's key to your company's financial health. If you're not quite sure what this metric means, you're in the right place to learn. We'll walk through what it is, why it matters, and how to maximize it.

What you'll learn:

What is gross revenue?

Gross revenue is the total amount of all of your revenue, from all sources, before you subtract your deductions and expenses. Product sales, services, and warranties all contribute to a company's gross revenue. You may even have investment income or rental income as well. All of this money has one thing in common - it comes into your organization from outside sources.

Why is gross revenue important?

Monitoring this metric allows you to evaluate your company's ability to generate income. Calculating the number is pretty simple: Add up all the money that comes in. Without this knowledge, it's almost impossible to grow your business because you don't know how your business is performing.

A change can be the result of your sales volume increasing or decreasing, such as when market demand increases or a competitor goes out of business. However, income strategies, such as putting your spare cash into an investment account, and pricing strategies, such as offering discounts or reducing total unit prices, can also have a big impact on your gross revenue.

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What it means to your business

Most organizations break gross revenue into several categories. Comparing the current total to previous time periods, as well as looking at both the total and the break-down categories, can help you spot trends and areas of opportunity or concern.

For example, you see that your overall gross revenue total is down 15% for the quarter. When you look at the break-downs, you discover that all products and services are on track or above goal, except for one. Without that insight, you may make big decisions that can affect the entire company.

By understanding the shortcomings, you can provide targeted interventions to the struggling area or to take advantage of an opportunity.

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When talking about revenue you may hear other similar terms and think that they are interchangeable. However, each term refers to a different value. Here are common terms related to revenue:

Gross revenue vs. net revenue

Gross revenue is the total of all money coming in. Net revenue is calculated by subtracting all deductions and expenses from the gross revenue amount. Additionally, gross revenue is used to calculate the net revenue.

Here are the formulas for both:

Money earned from sales + other money collected = gross revenue.

Gross revenue - deductions/expenses = net revenue.

For example, your company earned $10 million through product sales, consulting services and real estate income. During that same period, you spent $8 million on facility operations, equipment, and employee salaries. Your gross revenue is $10 million, and your net revenue is $2 million.

Understanding the difference between these two numbers allows you to see what's holding you back. If your gross revenue has increased significantly, but your net revenue decreased, the first step is to evaluate your expenses for opportunities to reduce costs.

Gross revenue vs. gross sales revenue

Often, sales and revenue are used interchangeably. However, they actually refer to two different values. Gross revenue is money coming in from all sources, such as interest earned, credits received, rental income, and refunds. Gross sales revenue is money coming in just from sales activities. Additionally, gross revenue is money that has already been collected, while the sales total has not always been paid in full.

Gross revenue vs. gross profit

Gross profit is the gross revenue minus the cost of goods sold (COGS). If a company has high gross revenue and a high cost of goods, the gross profit will be low. And a company with a low gross profit will struggle to stay financially healthy.

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How to maximize your revenue

The most common question about gross revenue is exactly what you'd expect. How can you increase the amount of money that comes into the business? Here are five ways to maximize your revenue:

• Measure and track: As renowned modern management theorist Peter Drucker once said, "You can't manage what you can't measure." To increase your gross revenue, you need to have historical data on how your revenue is tracking. Is it up? Down? Consistently the same? You should track gross revenue at least quarterly. High-volume organizations may want to monitor on a monthly basis.
• Use a sales methodology: Gross revenue depends on sales, so having a defined sales methodology to inform the sales process that each sales representative follows creates more consistent performance. By providing the right tools and processes, you can empower your sales representatives to help your customers solve their problems. When sales representatives use a proven framework that works for your target customers and product, gross revenue typically increases.
• Focus on the buyer: Focus on the buyer to build trust, which leads to higher long-term customer loyalty. By using buyer personas, sales representatives have the information they need to quickly understand customer needs, as well as where to find them (and how to best interact with them).
• Use sales analytics software: Tracking revenue manually is error-prone and time-consuming. You also lose out on valuable insights that an AI-based sales analytics software tool can provide. With the right sales analytics software tool, you can predict business outcomes and find hidden opportunities. A sales analytics tool shows pipeline metrics, top opportunities, and weekly deal updates, and ideally integrates with your customer relationship management software for a single point of truth.
• Consider increasing your prices: Reducing expenses is often the focal point for business leaders, but it doesn't necessarily lead to increased gross revenue. Increasing the sales volume has a greater effect, but it's nowhere near as effective as a small price increase. On the flip side, be careful about discounting. While it can be an effective sales strategy, discounting can have a bigger impact on the bottom line than it seems at first glance. Carefully weigh market value and customer budget to determine a price increase or discount in order to lift revenue without impacting your profitability. By using sales software, you can streamline the pricing process and make a data-driven decision instead of an emotional decision based on fear of losing a sale.

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Start monitoring your financial health today

Your gross revenue amount and trends hold the key to smarter business decisions for your company. By using this number effectively to find opportunities and patterns, you can make the right choices for the sales team and business. On the surface, it may look like it's just another number. But it holds the answers to a more profitable future.

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