What Is Gross Revenue? Meaning and Calculation

Gross revenue represents the total income generated from a company’s primary business operations before any expenses or deductions are considered. This figure reflects the full value of all goods sold or services provided during a specific accounting period. It is a measure of a company’s ability to generate sales from its core activities, capturing the total inflow of money from customers.

Calculating Gross Revenue

The calculation of gross revenue is a summation of all sales transactions from a company’s main lines of business. For a business that sells physical products, the calculation is the number of units sold multiplied by the price per unit. For instance, if a company sells 10,000 widgets at $50 each, its gross revenue is $500,000.

A service-based business follows a similar logic. The calculation might involve multiplying the number of hours billed by the standard hourly rate. For businesses operating on a contract or subscription model, gross revenue is the sum of all service contracts or subscriptions sold. For example, a consulting firm with 100 clients each paying a $2,000 monthly retainer would have a monthly gross revenue of $200,000.

Items Excluded from Gross Revenue

While gross revenue captures all initial sales, certain items are later subtracted to determine a more refined revenue figure called net revenue. These subtractions are recorded in contra-revenue accounts.

One deduction is for sales returns, which occur when customers send back products for a full refund. Another common adjustment is for sales allowances, which happens when a customer agrees to keep a product with minor defects in exchange for a price reduction. A third category involves sales discounts, which are reductions in price offered to customers as an incentive for early payment of an invoice.

Gross Revenue on the Income Statement

On a company’s income statement, gross revenue is the starting point, appearing as the very first line item. This figure is often called the “top line” and provides the basis from which all subsequent costs are subtracted. Following the gross revenue line, the amounts for sales returns, allowances, and discounts are subtracted to calculate net revenue.

From net revenue, the next major deduction is the Cost of Goods Sold (COGS), which includes all direct costs associated with producing the goods or services sold. Subtracting COGS from net revenue yields a company’s gross profit.