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Annual business revenue means 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.
Key Points
• Annual revenue’s meaning is the amount of money a business generates in one year, calculated before expenses are deducted.
• Annual revenue can be based on a calendar year (beginning January 1) or a fiscal year (July 1 to June 30 of the following year, for example).
• To calculate annual revenue, multiply the number of units sold by the sale price.
• Annual revenue is an important financial metric for determining the health of your business and is also helpful if you need to apply for a small business loan or pitch your company to investors.
What Is Annual Business Revenue?
Annual revenue means the total amount a business made in sales over 12 months, whether that’s for products, services, or both. It also includes any other income the business has generated. This number is also often referred to as the “top line,” since it’s at the top of a business’s income statement. Annual revenue does not account for any of your expenses, such as payroll, operating costs, or rent.
How does annual business revenue differ from profits? Profit is the amount you have after you subtract annual expenses from annual revenue.
What Is Annual Revenue Used For?
Knowing your annual revenue is the first step in determining the health of your business. Keeping tabs on exactly how much your business is bringing in each year helps you assess 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 when you apply for a business credit card, line of credit, or small business loan.
When calculating business revenue, you’ll include money you earn from your main business activities, such as sales of your products and/or services, as well as revenue you earn from activities not directly related to your business, such as interest from investments or renting out a floor of your building to another company.
There are also two different periods for calculating annual revenue: It can be over a fiscal year, which runs from whatever day of the year you start calculating, like July 1, to the same date the following year. Or it can be a calendar year, which starts on January 1. Some businesses prefer to use one timeframe 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.
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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’s money earned from the core activities of the business. In the example below, 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.
Nonoperating Revenue
Not all revenue that comes into your business is from your primary business activity or considered operating revenue. Nonoperating revenue is the income your company brings in outside 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 nonoperating 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 nonoperating 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 nonoperating revenue.
• Rent income: If you rent property or equipment to others, the money you receive from these rentals is part of your annual nonoperating revenue.
• Asset and capital sales: If you sell a piece of equipment to another company, then the sale price is part of your nonoperating revenue.
• Contra revenue: Unlike the other nonoperating 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.
Gross Annual Revenue vs Net Annual Revenue
Gross annual revenue means the total amount of money a company makes in a year. It does not subtract any of the expenses that might be involved. It might also be referred to as annual sales.
Net annual revenue is the amount of money a company makes in a year minus various costs such as discounts, returns from consumers, and price reductions. It may also be called net annual sales.
Note that neither gross annual revenue nor net annual revenue subtracts the cost of creating the services or products or other operating costs.
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 you with insight into whether your firm is generating enough earnings to not only cover its expenses but also invest in opportunities for growth. This is particularly important when you’re looking to apply for a business loan or attract investors.
Annual business revenue also has meaning 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’ rates to determine whether it’s a good investment opportunity. A review of the business owner’s cash management will help them figure out if the owner is financially prudent while growing the company.
Lenders for most types of business loans 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, representing a lower risk to the lender.
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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 for each service and product and the quantity the company sold. 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) that your business earned during the year to come up with 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 all 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 profit will be whatever remains after you subtract 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. Census figures show that the average annual revenue for a small business with a single owner and no employees is $46,978 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 about $387,000, while the average revenue for businesses with up to nine employees is around $1.08 million.
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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 its products and services. 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 Income vs Profit
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) and your net business income.
Net business income is the amount of profit your company has left over after paying all its expenses. Also called net profit, net income is the “bottom line” of a spreadsheet.
There are other types of profit, such as operating profit, which is gross profit minus operating expenses. Another way to assess your profits is to compare operating income vs. EBITDA (earnings before interest, taxes, depreciation, and amortization).
Operating income suggests how much profit can be gained from operating revenue if operating expenses are lowered. EBITDA suggests a company’s income potential if certain variables like interest or taxes can be mitigated.
But net profit is usually most important, since it shows how well you’re doing at keeping expenses lower than revenues and maintaining 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 |
The Takeaway
One of the most important metrics for a small business owner to track is 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 income. This tells you whether your company’s sales are indeed exceeding its costs such that 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.
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FAQ
What is business revenue vs. income vs. profit?
Revenue is the total amount of money that a business receives from its sales and services and from any other sources. 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 defined as the total income your business generates in one year, before expenses are subtracted. To calculate annual revenue, you’ll need to multiply the quantity of goods and services sold by the sales price for each item. This gives you your operating revenue. Next, add up your nonoperating 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 pursue 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).
What is the difference between gross revenue and net revenue?
Gross revenue is the total amount of cash that a business generates. This calculation ignores expenses. Net revenue is gross revenue after all expenses have been accounted for. This figure represents a business’s level of financial health.
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