Legal Definitions - net revenue

Net revenue refers to the total income a business generates from its primary operations, such as selling goods or providing services, after accounting for certain deductions. These deductions typically include customer returns, sales allowances (e.g., price reductions for damaged goods), and discounts offered. It represents the actual income received from sales before any operating expenses, interest, or taxes are subtracted. Often considered the "top line" figure on a company's income statement, it provides a crucial indicator of a business's sales performance and is a key metric in financial reporting and contractual agreements.

• Example 1: Retail Clothing Store

  A clothing boutique sells $75,000 worth of merchandise in a quarter. During that period, customers return items totaling $4,000, and the store offers $1,500 in promotional discounts to loyalty program members.

  Illustration: The boutique's gross sales were $75,000. To calculate its net revenue, the $4,000 in customer returns and $1,500 in discounts are subtracted. This results in a net revenue of $69,500 for the quarter. This figure represents the actual income from sales that the boutique can use to cover its operational costs, such as rent and employee salaries, before determining its overall profit.

• Example 2: Online Subscription Service

  An online streaming platform collects $1,200,000 in subscription fees from its users in a month. However, it issues $20,000 in refunds to users who canceled early or experienced technical issues, and provides $5,000 in credits to long-term subscribers as a goodwill gesture.

  Illustration: The platform's gross subscription income is $1,200,000. After deducting the $20,000 in refunds and $5,000 in credits, its net revenue for the month is $1,175,000. This is the core income derived from its service offerings, which is then used to pay for content licensing, server maintenance, and marketing expenses.

• Example 3: Manufacturing Company

  A furniture manufacturer ships products worth $500,000 to various retailers. Due to a minor defect found in a batch of chairs, the manufacturer provides a $15,000 allowance to one retailer, reducing their payment. Additionally, a large order received a $10,000 volume discount.

  Illustration: The manufacturer's total invoiced sales were $500,000. By subtracting the $15,000 allowance for the defective batch and the $10,000 volume discount, the company's net revenue from these sales is $475,000. This amount reflects the actual income generated from selling its manufactured goods, which will then contribute towards covering production costs, administrative overheads, and ultimately, profit.