Annual business revenue refers to the income generated by a business over the course of one year before any expenses are deducted. This is a key number for business owners to know because it tells you how well your company is doing.
Knowing your annual revenue also allows you to track your company’s performance against itself in previous years, as well as against competitors.
Read on to learn how to quickly calculate your business’s annual revenue, plus how you can use this metric to monitor and grow your small business.
What Is Annual Business Revenue?
Annual revenue for a business refers to the amount a business made in sales over 12 months, whether that’s for products, services, or both. This number is also often referred to as the “top line,” since it’s added to the top of a business’s income statement. Annual revenue does not account for any of your expenses, such as payroll, operating costs, and rent.
How does annual business revenue differ from profits? Profit is the amount you have after you subtract annual expenses from annual revenue.
How Does Annual Business Revenue Work?
When calculating business revenue, you’ll include money you earn from your main business activities, such as sales of your products or services, as well as revenue you earn from activities not directly related to your business, such as interest from investments or renting a floor of your building to another company.
There are also two different ways to calculate annual revenue: It can be over a fiscal year, which is from whatever point in the year you start calculating, like July 1, to the same date the following year. Or, it can be a calendar year, which would start on January 1. Some businesses prefer to use one method over the other.
Either way, it’s important to calculate and track your annual revenue. Doing so helps you determine if your business is making a profit and growing. It can also assist you in preparing to pitch to investors, applying for small business loans, and planning and strategizing for future growth.
How to Calculate Annual Business Revenue
To calculate annual business revenue, you’ll need to determine your firm’s different revenue streams. To start, compile information on the selling price and quantity the company sold for each product or service.. To calculate the total revenue of each product or service, use this simple formula:
Annual Revenue of Product or Service = Number of Units Sold x Sale Price
If you sell different products and services at different prices, you would use the above formula to calculate the revenue for each product or service, and then add each total together to get your total revenue from your business’s operations.
Next, you’ll want to add any other income (including investment income or sales of any assets) your business earned over the year to get your total annual business revenue.
Annual Business Revenue Example
For this example, let’s say you sell jewelry. For simplicity’s sake, let’s say you only have three products:
• Necklaces: $200
• Rings: $100
• Bracelets: $75
Last year, you sold 500 necklaces, 750 rings, and 1,000 bracelets. We start our calculations by figuring out your revenue for each.
• Necklaces: $200 x 500 = $100,000
• Rings: $100 x 750 = $75,000
• Bracelets: $75 x 1,000 = $75,000
Now we add each of these together to calculate total revenue.
100,000 + 75,000 + 75,000 = $250,000
Assuming you didn’t have any other sources of income, your annual business revenue would be $250,000. Remember, this is before taking any expenses into account. Your profits will be what you calculate after subtracting the expenses involved in making the jewelry, as well as operating expenses, from your total revenue.
What Is Considered Good Annual Small Business Revenue?
What’s considered a good annual revenue for a small business depends on the size of the business. The average annual revenue for a small business with a single owner and no employees is $44,000 per year. As the number of employees starts to rise, so does the average revenue.
The average revenue for companies with one to four employees is $387,000, while the average revenue for businesses with up to nine employees is around $1 million.
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What Is Annual Business Revenue Used For?
Knowing your annual revenue is the first step to determining the health of your business. You’ll need to know exactly how much your business is bringing in each year to determine if your business is growing or stagnant, as well as calculate whether it has healthy profit margins. You’ll also need to know your annual business revenue when you file your taxes and if you ever apply for a business credit card, line of credit, or small business loan.
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The Importance of Annual Business Revenue
Annual revenue is one of the most important financial metrics for any business. As a business owner, knowing your annual revenue provides insight into whether your firm is generating enough earnings to not only cover its expenses but also invest in opportunities for growth.
Annual business revenue is also important to potential investors and lenders. Investors will use annual revenue (among other metrics) to assess whether or not a company is worth investing in. They will often look at a company’s revenue growth rate and compare it to their competitors to determine if it’s a good investment opportunity.
Lenders will look at a company’s annual revenue to assess its creditworthiness. A higher annual revenue indicates that the business has the ability to repay its debts and represents a low risk to the lender.
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Is Including Annual Recurring Revenue Worthwhile?
Annual recurring revenue (ARR) is a metric primarily used by businesses operating on a subscription-based model. ARR tells you the normalized annual revenue that a company expects to receive from its subscribers in return for products and services provided. In other words, it is the predictable and recurring revenue generated by customers within a one-year period.
ARR is similar to monthly recurring revenue (MRR) — the key difference is that ARR is normalized to a year rather than a month.
For some businesses, annual recurring revenue is a valuable metric that can help owners quantify a company’s growth, evaluate its subscription model, and forecast its revenue.
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Annual Revenue vs Annual Sales
While the terms annual revenue and annual sales are often used interchangeably, they actually refer to two different things. Annual revenue encompasses all sources of income or revenue for a company, including annual sales revenue. Annual sales, on the other hand, only includes revenue generated from the sales of goods and services.
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Distinguishing Net Business Income From Gross Annual Revenue
While looking at your annual business revenue is helpful for understanding how your business is doing at generating sales, it’s not the full picture. If you’re spending more than you’re making, your business will struggle to stay afloat.
That’s why it’s important to determine both your annual business revenue (also known as gross revenue), as well as your net business income.
Net business income is the amount of profit your company has left over after paying all its expenses. This number lets you know how well you’re doing at keeping expenses lower than revenues so you have a decent profit margin.
You can look at your small business income statement to see both revenues and expenses to help you strategize how to increase net income.
Here’s a quick snapshot of gross annual revenue vs. net business income.
| Gross Annual Revenue | Net Business Income |
|---|---|
| Cash generated by a business before taking out expenses | Total earnings after accounting for any expenses |
| Indicates how successful a business is at making sales | Indicates how financially healthy a business is |
Types of Revenue
When determining your annual business revenue, you’ll want to be sure you include the two main types of business revenue.
Operating Revenue
Operating revenue includes sales from products or services you regularly sell. In other words, it is money earned from the core activities of the business. In the example above, revenue from jewelry sales falls under operating revenue. If you are a graphic designer, the logo or website design packages you sell fall into this category.
Non-Operating Revenue
Not all revenue that comes into your business is from your primary business activity or considered operating revenue. Non-operating revenue is the income your company brings in outside of its primary business activity. It tends to be sporadic and is not expected to be part of your business’s income on a regular basis.
Some common types of non-operating revenue that could still impact your business’s finances include:
• Interest If your company offers financing to customers or invests in the stock market, the interest you gain from these transactions falls under non-operating revenue.
• Dividends If your business invests in shares of another company, the profits you earn from this investment are part of your company’s annual non-operating revenue.
• Rent income If you rent property or equipment, the money you receive from these rentals is part of your annual non-operating revenue.
• Asset and capital sales If you sell a piece of equipment to another company, then the sale price is part of your annual non-operating revenue.
• Contra revenue Unlike the other non-operating revenue, contra revenue has a negative value. Contra revenue, which can include returned goods, unpaid invoices, and unsold inventory, is a deduction from gross revenue.
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The Takeaway
As a small business owner, there are a lot of numbers you need to track. One of the most important is your annual business revenue. This number refers to the total amount of money your company makes during a year from the sale of products and services, plus any other additional income.
Annual revenue is the starting point from which you can determine your net revenue, which tells you whether your company’s sales are indeed exceeding its costs and the business is making a profit.
Calculating your annual revenue also allows you to track your company’s growth over time and compare its performance to industry peers. You’ll also need to know your annual revenue if you’re looking to bring in an investor or apply for any type of business financing.
If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.
FAQ
What is business revenue vs. income vs. profit?
Though these three terms sound similar, they each refer to different things.Revenue is the total amount of funds that a business receives from its sales and services. Income is the amount of money a company makes minus the cost of running a business. Profit is the amount of money a business receives after it accounts for the cost of goods sold (COGs). Unlike income, profit doesn’t account for other operational costs like salaries or taxes.
How can you find your annual business revenue?
Annual revenue is the total income your business generates in a year before expenses. To calculate annual revenue, you’ll need to multiply the quantity of goods and services sold by the sales price for each item and add them up. This will give you your operating revenue. Next, look at your non-operating revenue — this is how much you earn from activities not directly related to your business (such as renting your building to other companies). You’ll need to combine operating and nonoperating revenue to calculate your annual business revenue.
Why is annual business revenue important to know?
You need to know your annual business revenue to file taxes for your business, determine your profit, and track your company’s performance year to year. If you decide to take out business financing, you’ll need to have your revenue numbers ready for the application.
How do you calculate business revenue?
A simple way to calculate business sales revenue is to multiply the number of sales by the sales price. To calculate total business revenue, you’ll also need to add in income from other sources (such as investments or renting out equipment).
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