Gross revenue

Gross revenue is the total amount of sales recognized for a reporting period, prior to any deductions. This figure indicates the ability of a business to sell goods and services, but not its ability to generate a profit.

Deductions from gross revenue include sales discounts and sales returns. When these deductions are netted against gross revenue, the aggregate amount is referred to as net revenue.

The investment community sometimes calculates the value of a business as a multiple of its gross revenue, especially in new industries or for startup companies where there are few other measures to use as the basis for a valuation. Under these circumstances, company management may unduly focus on increasing gross sales at a rapid rate in order to increase the company valuation for funding purposes or to obtain a higher price in the event of a sale of the business.

An excessive focus on gross revenue can have a number of negative consequences, such as:

  • Issuing new products that have not yet been entirely tested, so that sales returns are excessively high and the company's long-term reputation is damaged.
  • Selling even when there is little or no discernible profit, simply in order to increase the revenue figure.
  • Engaging in spurious bill and hold transactions, in order to recognize revenue on items that have not yet shipped from the premises of the seller.

Consequently, it is better for an investor to focus on other metrics than the amount of gross revenue, such as net sales, gross margin, contribution margin, or net profits.

The use of gross revenue as a metric has somewhat more validity in a services organization, since there are no sales returns that might otherwise create a substantial difference between gross sales and net sales.

Similar Terms

Gross revenue is also known as gross sales.

Related Courses

Bookkeeping Guidebook 
Revenue Recognition