Most founders spend months on product before they've spent 20 minutes on revenue math. That's backwards. The revenue formula for your business should be the first thing you can explain — and defend — to anyone who asks.
Revenue math isn't about precision. It's about understanding which variables actually move the needle, and by how much. Let's build that intuition.
The 3 Revenue Formulas You Need to Know
Almost every business maps to one of three models. Once you know which one you are, the math becomes obvious.
ARPU stands for Average Revenue Per User. It's your blended average across all pricing tiers — so if 80% pay $19 and 20% pay $79, your ARPU is roughly $31.20.
5 Revenue Models Explained
Revenue model and pricing model are not the same thing. The revenue model describes the fundamental mechanism by which money flows to you.
Customer pays once per purchase. Simple, direct. The challenge: you have to keep acquiring new customers or repeat-purchase rates need to be high.
Customer pays a recurring fee — monthly or annually. Predictable revenue, high lifetime value, but acquisition costs are front-loaded and churn compounds painfully.
You monetise attention. Users are free; advertisers pay to reach them. Revenue scales with traffic. Unit economics are terrible below ~100K monthly sessions.
You earn a commission when you send customers to another business. Zero inventory risk, but you're dependent on someone else's conversion rate and commission terms.
You own IP (software, content, brand, patents) and charge others to use it. Often high margin once developed. Revenue doesn't scale with your effort.
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50 interactive revenue models. Adjust assumptions, see results live.
Browse All Businesses →Revenue vs Profit — The Mistake Most Founders Make
Revenue is vanity. Profit is sanity. The number you quote at dinner parties is almost never the number your accountant cares about.
Revenue is the total money coming in before any costs. Gross profit subtracts Cost of Goods Sold (COGS) — the direct costs to make or deliver what you sell. Net profit subtracts everything else: overheads, salaries, software, marketing, taxes.
A business doing $500K/year in revenue but spending $490K is not a successful business — it's a $10K/year job with extra stress. Always know your net margin, not just your revenue.
How to Project Year-1 Revenue Realistically
The most credible projections start from the bottom up — from real assumptions about customer acquisition, not from top-down market share fantasies. Always build three scenarios.
| Scenario | Assumption | Year-1 Revenue | Probability |
|---|---|---|---|
| Conservative | Half your conversion targets, slower growth | $28K | 50% |
| Base | Targets met as modelled | $67K | 35% |
| Optimistic | Word-of-mouth kicks in, referral loop | $140K | 15% |
Plan for conservative. Build for base. Dream about optimistic, but don't make decisions based on it. The weighted average here is roughly $55K — that's the number that should drive your cost decisions.
Frequently Asked Questions
What is the simplest way to calculate revenue?
Revenue = Price × Quantity. For a service business, that's Rate × Hours. For a subscription business, it's Customers × Monthly fee. Everything else is a variation of one of these three.
Does revenue include VAT/sales tax?
No. Revenue (also called turnover or net revenue) is reported excluding sales tax. VAT is collected on behalf of the government — it's not your income. Always strip it out before calculating margins.
What is a realistic revenue target for a first-year business?
It depends entirely on the model. A solo consultant can generate £60-120K year one. A product business might do £10-40K. A SaaS startup might end year one at £0-5K MRR. Don't compare across models — compare within your category.
How do I calculate monthly recurring revenue (MRR)?
MRR = number of active paying customers × average monthly fee. If you have annual subscribers, divide their annual payment by 12 to get their monthly contribution. If you have multiple tiers, calculate each tier separately and sum them.
▸ STOP GUESSING
Plug your numbers into the BoringRiches calculators
50 interactive revenue models. Adjust assumptions, see results live.
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