Revenue Definitions and how to Change Them

What exactly is "revenue"? This may seem like a trivial question, but in our experience, the definition of revenue varies widely within the D2C world, and even between different teams within a brand. It's not uncommon to find as many definitions of revenue as there are people in your brand.

Let's try to put an end to this revenue jungle - and get clarity on how we recommend you define revenue, but also how you can customize our standard calculation to suit your needs.

The Revenue Funnel: Gross vs. Net Revenue

There are two aspects that often stand in the way of a clear understanding of revenue:

1. The prefixes "gross" and "net" do not relate to sales taxes
   They refer - according to RetentionX's definition of revenue - to revenue before or after product returns. In RetentionX, both revenue calculations exclude sales tax by default.
2. Revenues are subject to deductions
   The total amount paid by a customer does not automatically qualify as revenue; what matters is from what you earn money. We strongly recommend excluding two components: Customer-paid shipping fees, which typically cover only the brand's shipping costs, and sales tax, which must be paid to the IRS.
   

So, let's take a look at the formulas:

with Gross Merchandise Value = The original selling price of a product before any deductions.

RetentionX associates product returns to date the order was placed. For instance, if an order was made on June 3 and returned on June 17, we adjust the net revenue for June 3. In contrast, e.g. Shopify associate returns with the day they were logged, in this case, June 17.

 

But let's make this a bit more tangible with an example:

Let's say you sell sneakers. The original price (incl. 20% sales taxes) is $150. However, customer Jim takes advantage of a 20% discount code, reducing the price to $120. He directly decides to purchase two pairs, one for each size he wants to try. On top of the product cost, there's a $5 delivery fee, resulting in a total order value of $245. A week after the delivery, Jim returns one pair of sneakers and receives a refund of $120.

RetentionX calculates the revenue as the following:

Gross Merchandise Value	$300
+ Shipping Fee	+ $5
	$305
- Shipping Fee	- $5
- Discounts	- $60
	$240
- Sales Taxes	- $40
Gross Revenue =	$200

 

Gross Revenue	$200
- Returned Revenue	- $120
	$80
+ Sales Taxes of Returns	+ $20
Net Revenue =	$100

 

How to Change the Revenue Definitions

Of course, we highly recommend you to stick to our pre-defined revenue calculation, but in case they are not matching your requirements, you are able to change the gross revenue and net revenue definitions under Company Settings > Revenue Definition. Please note that any changes you make will trigger an immediate reimport to clean up your already calculated data.

 

Continuing with our example, the gross revenue calculation would change as follows if shipping fees and sales taxes were included:

Gross Merchandise Value	$300
+ Shipping Fee	+ $5
	$305
- Discounts	- $60
Gross Revenue =	$245

 

If you're e.g. running Shopify, the definition of revenue helps you understand the differences between the numbers you'll find in Shopify vs. RetentionX, as Shopify includes shipping revenue and (for most KPIs) sales tax by default.

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