Revenue Formula: How to Calculate Total Revenue (and the B2B Revenue Equation)

The revenue formula is Revenue = Price x Quantity sold. For total revenue, run it for each product or service and add the lines, then subtract discounts, returns and allowances to get net revenue. A SaaS company adds subscription revenue (about MRR for each month) to services revenue, and forecasts new revenue with the B2B revenue equation.

Most pages that rank for this search stop at one bakery or one bookstore: units times price. That is the right first step, and it is where this guide starts. It does not answer the questions a software company asks: why ending ARR is not this year's revenue, why a quarter full of closed deals barely moves the income statement, and how to turn a pipeline into a revenue number before the deals close. So after price times quantity you get the SaaS version, the B2B revenue equation that sales and finance use to plan, a calculator that runs all three, a way to rebuild revenue from cash and the balance sheet, and the Excel formulas.

What is the revenue formula?

Revenue equals the price of what you sold times the quantity you sold, for the period you are measuring. For one product it is a single multiplication. For a business with several products or services, run it per line and add the lines up.

• Revenue = Price per unit x Units sold
• Total revenue = (Price 1 x Quantity 1) + (Price 2 x Quantity 2) + ... for every line
• Net revenue = Total revenue minus discounts, returns and allowances

"Unit" means whatever you charge for. A retailer charges per item, a consultancy per hour, and a SaaS company per seat, per account or per month of access. The illustrative example below has two lines, a subscription and a services line, which is how most B2B software revenue is split.

The subscription line is 94% of the total here. That share matters more in software than in most industries, because subscription revenue renews without a new sale and services revenue has to be sold again. Services revenue vs recurring revenue covers how to keep the two apart.

Revenue formulas at a glance

Eight formulas answer most revenue questions, from a single product line to a pipeline forecast. The examples are illustrative and use the same company throughout this page.

How to calculate total revenue, step by step

Pick the period, list every line you charge for, multiply price by quantity on each line, add the lines, then take out deductions. Done in that order, the result ties to the income statement.

• 1. Fix the period. A month, a quarter or a fiscal year. Every line has to cover the same dates.
• 2. List every revenue line. Subscriptions by plan, usage or overage charges, implementation, training, support packages. Leave out anything that is not from your core business (see "What revenue is not" below).
• 3. Use the price actually charged. The contract price after any negotiated discount, not the list price. If prices vary, use total billed divided by units, a weighted average, never a simple average of the price points.
• 4. Use the quantity delivered in the period. For subscriptions, that is months of service delivered, not contracts signed.
• 5. Add the lines for total revenue.
• 6. Subtract discounts, returns, refunds, credits and allowances for net revenue. In SaaS the common ones are service-level credits, refunds and one-time concessions.

Step 4 is where software companies go wrong with the simple formula. A three-year, $72,000 contract signed in December is not $72,000 of December revenue. It is $2,000 of revenue a month for 36 months.

Gross revenue and net revenue

Gross revenue is the total before deductions. Net revenue is what is left after discounts, returns and allowances. Public companies usually report the net figure as "revenue" on the income statement, so when someone asks for revenue they almost always mean net revenue. Gross revenue vs net revenue lists what sits between the two in a SaaS company, from discounts and service credits to marketplace fees.

Two things never come out of revenue, even though people often subtract them: cost of revenue and commissions. Both are costs. They come out further down the income statement, which turns revenue into gross profit and then operating profit. Revenue vs profit walks through every profit line with a SaaS P&L.

How do you calculate revenue for a SaaS company?

SaaS revenue is subscription revenue recognized month by month over the contract, plus services revenue recognized as the work is delivered. For subscriptions, the revenue in any month is close to that month's MRR, and the revenue for a year is the sum of twelve months, not the ARR at year end.

The rules come from the revenue recognition standards. IFRS 15 sets out five steps: identify the contract, identify the performance obligations, determine the transaction price, allocate the price to each obligation, and recognize revenue when each obligation is satisfied. ASC 606, the US standard, follows the same five-step model. For a subscription, the obligation is access to the software over the term, so the revenue is spread evenly across it. For implementation services, it is recognized as the work is done. ORM's revenue recognition entry covers the details.

The four SaaS numbers that get mixed up with revenue:

Worked example: a SaaS company's revenue for the year

This example is illustrative. The company and its numbers are made up. A B2B SaaS company starts the year at $8,000,000 of ARR and ends it at $10,000,000, adding ARR evenly through the year. It also delivers $600,000 of implementation and training.

• MRR. Starting MRR is $8,000,000 / 12 = $666,667. Ending MRR is $10,000,000 / 12 = $833,333. The MRR formula entry covers how to build MRR from contracts.
• Subscription revenue. With MRR rising evenly, average monthly subscription revenue is about $750,000, so the year's subscription revenue is about $750,000 x 12 = $9,000,000. That is average ARR, not ending ARR.
• Services revenue. $600,000, recognized as the hours are delivered.
• Total revenue. $9,000,000 + $600,000 = $9,600,000. Subscription share: 93.75%.

The company will say it is a "$10M ARR business" and report $9.6 million of revenue. Both are right. The $1 million gap between ending ARR and this year's subscription revenue is growth that has been sold but not yet recognized, and it lands in next year's revenue if the customers renew. Growth that comes late in the year shows up even less: the same $2 million of new ARR added all in December would add almost nothing to this year's revenue.

The B2B revenue equation: how to forecast revenue from pipeline

The B2B revenue equation, also called the sales velocity formula, is Qualified opportunities x Win rate x Average deal size / Sales cycle length in days. It tells you how much new deal value your pipeline produces per day. Multiply by the days in a period to get expected bookings for that period.

• Revenue velocity per day = Opportunities x Win rate x Average deal size / Sales cycle days
• Expected bookings in a period = Velocity per day x Days in the period

Illustrative example: 150 qualified opportunities, a 20% win rate, a $30,000 average deal and a 90-day cycle. Velocity is 150 x 0.20 x $30,000 / 90 = $10,000 a day. Over a 90-day quarter that is $900,000 of bookings from about 30 won deals. For reference, Ebsta and Pavilion put the B2B new-logo win rate at about 19% in their 2025 GTM benchmarks (655,000 opportunities analyzed), and the Digital Bloom 2025 pipeline benchmarks put the average B2B SaaS cycle at 84 days.

The equation has four levers, and they do not fail for the same reason. Across ORM's B2B SaaS customers, cycle length has moved most in 2026: buyers are delaying decisions while they wait to see whether AI solves their problem a different way. When deal size or win rate drops, the cause is usually competition. When deal count drops, the problem is pipeline generation, so marketing and the BDR team are where to look. In the example, a cycle that stretches from 90 to 108 days (20% longer) cuts velocity to $8,333 a day and the quarter to $750,000, with the same pipeline and the same win rate. Which sales velocity lever moves first goes deeper.

To run the equation on your own numbers by rep or segment, use the sales velocity calculator; for the funnel view by stage, the pipeline velocity calculator. Both use the same formula.

Why bookings from the equation are not this quarter's revenue

The equation produces bookings. In a subscription business only a small part of a quarter's bookings becomes revenue in that quarter. If every deal is a 12-month subscription that starts on its close date and deals close evenly through the quarter, the average deal earns revenue for half the quarter, 45 days out of 365.

In-period revenue from new bookings = Bookings x (Days in period / 2) / 365

For the example: $900,000 x 45 / 365 = about $110,959 of revenue this quarter. The other $789,041 is recognized over the next twelve months. Real quarters are worse than "evenly": across ORM's customers, the third month of a quarter is the largest and the first month the smallest, and a large share of business closes in the last week. Deals that close in week 13 add almost no revenue to the quarter they close in. This is why a SaaS revenue forecast is built mostly from the ARR you already have, and the new bookings mostly shape next year.

Revenue formula calculator

Enter your own numbers. The calculator runs the three formulas on this page: total and net revenue from price and quantity, ARR from MRR, and the B2B revenue equation with the share of new bookings that becomes revenue in the same period. It is prefilled with the illustrative examples above.

How to calculate revenue from the balance sheet and cash flow

Revenue is on the income statement, not the balance sheet, but you can rebuild it from cash and two balance sheet lines: Revenue = Cash collected from customers + Increase in accounts receivable minus Increase in deferred revenue. It works because every dollar of revenue is either collected, still owed, or was collected earlier and is now being earned.

Illustrative example, using the same company: during the year it collects $11,000,000 from customers. Accounts receivable rises by $400,000 (revenue earned but not yet paid). Deferred revenue rises by $1,800,000 (cash collected for months not yet delivered, typical when customers pay annual contracts up front). Revenue = $11,000,000 + $400,000 minus $1,800,000 = $9,600,000, which ties to the income statement in the example above.

This check is useful in SaaS because collections run ahead of revenue when a company bills annually up front and grows. A rising deferred revenue balance is good news: it is revenue already paid for. Bookings vs revenue shows how a single contract moves through bookings, billings, cash and revenue.

What is the revenue function in economics?

In economics, total revenue is TR = P x Q, and the revenue function writes it as R(q) = p(q) x q, where price depends on how many units the market buys. Two related formulas come with it: average revenue (AR = TR / Q, which equals price) and marginal revenue (MR = change in TR / change in Q, the revenue from one more unit).

Illustrative example: if demand is p = 100 minus 2q, revenue is R(q) = (100 minus 2q) x q = 100q minus 2q squared. Marginal revenue is 100 minus 4q. Revenue peaks where marginal revenue is zero, at q = 25 units, a price of $50 and revenue of $1,250. Selling more than 25 units requires cutting the price so much that total revenue falls.

The same idea shows up in SaaS pricing. A discount wins more deals but lowers the price on every deal, so total revenue rises only if the extra volume beats the lower price. Unlike the textbook case, a SaaS discount usually carries into renewals, so the lower price repeats every year.

What revenue is not

Revenue is only what you earn from your core business, in the period. Five things often get counted in it by mistake.

• Bookings and billings. Signed contracts and invoices are future or timing numbers. Revenue is earned as the service is delivered.
• Gains. Selling an old server or an investment above book value produces a gain, reported below operating income, not revenue.
• Sales tax collected. It is owed to the tax authority, so it is a liability, not income. US GAAP lets a company elect to exclude it from the transaction price (ASC 606-10-32-2A).
• Commissions. They are a sales and marketing cost, not a reduction of revenue. Under ASC 340-40, commissions on multi-year SaaS contracts are often capitalized and expensed over the benefit period.
• Costs of any kind. Hosting, support, S&M, R&D and G&A come out below revenue (S&M plus G&A is SG&A). Revenue minus cost of revenue is gross profit (gross margin formula); minus operating expenses it is operating margin.

To see all of these lines laid out month by month for a SaaS company, the profit and loss template is a free spreadsheet with subscription and services revenue, cost of revenue, S&M, R&D and G&A.

Revenue formulas in Excel and Google Sheets

The same formulas work in Excel and Google Sheets. Put quantities in B2:B10, prices in C2:C10 and total deductions in D12.

For growth over several years, the revenue growth rate calculator adds CAGR.

Where ORM fits

Price times quantity tells you what you sold. The harder question for a B2B SaaS company is what revenue will be next quarter and next year, when most of it comes from renewals of ARR you already have, and new bookings arrive late in the quarter and turn into revenue slowly. ORM builds revenue forecasts from the CRM and the subscription data a company already has: renewals forecast from renewal dates, new business from how deals move through stages, and seasonality by week of the quarter. ORM targets 95% forecast accuracy. For how the forecast feeds the plan and the budget, see FP&A.

Sources

All checked on October 25, 2026.

• IFRS Foundation, IFRS 15 Revenue from Contracts with Customers: the five steps of the revenue model.
• Ebsta x Pavilion, 2025 GTM Benchmarks Report: new-logo win rate of about 19% (p.6); 655,000 opportunities analyzed.
• The Digital Bloom, Pipeline performance benchmarks 2025: average B2B SaaS sales cycle of 84 days.
• ORM, observations across its B2B SaaS customers (Pete Furseth): cycle length as the lever moving most in 2026, what deal size, win rate and deal count changes point to, and seasonality within the quarter.