Calculating your company’s annual revenue involves more than just calculating a statistic to report to the Internal Revenue Service. Revenue is the income created by your company’s sales of goods, services, capital, or any other assets before any expenses or charges are deducted. Finding this number allows you to compare your firm’s performance in prior years as well as the performance of competitors, and it allows you to determine how much income your company generates. The calculation requires many large numbers that can be reduced to a few easy steps.
What is the meaning of Annual Revenue?
Annual revenue for a firm refers to the total amount of sales made over a 12-month period, whether for products, services, or both. This figure is sometimes known as the “top line” because it appears at the top of a company’s income statement. Annual revenue excludes all of your expenses, including personnel, operational costs, and rent.
Types of Revenue
Revenue (or income) is classified into two types: operating revenue and non-operating revenue. When calculating your annual business revenue, make sure to include these two main types of revenue.
Operating revenue covers all sales of items or services that you sell on a regular basis. In the above scenario, the jewelry you sell is classified as operating revenue. If you are a graphic designer, your logo, or website design packages come under this category.
You may also have several sorts of non-operating income. This is money earned by your company via non-sales activities, which can include:
- Interest If your company provides client financing or participates in the stock market, the interest you earn from these transactions is classified as non-operating revenue.
- Dividends If your firm invests in another company’s stock, the gains you earn from this investment are included in your company’s yearly non-operating revenue.
- Rent earnings If you rent out property or equipment, the money you get is included in your yearly non-operating revenue.
- Capital and asset sales If you sell equipment to another company, the transaction amount is included in your yearly non-operating revenue.
- Contra profit Contra revenue, unlike the other non-operating revenue, has a negative value. Contra revenue is a deduction from gross income that can include returned items, unpaid invoices, and unsold inventories.
Why is annual revenue important for your business?
Knowing your annual revenue is critical for all businesses, especially small ones, for a variety of reasons. To begin, comparing this year’s revenues to last year’s can assist you in determining if you performed better or worse in comparison. This comparison indicator can assist you in making sales strategy decisions, such as boosting sales prices if revenues are down.
And, if you intend to apply for small business loans now or in the future, you’ll need to know your annual revenue figures because lenders use them to determine your ability to repay a loan.
For example, while filing taxes for your firm, you will need to know your annual revenue. This, coupled with your company’s expenses, will determine how much tax you pay.
Annual business revenue can also be used to gauge how well your company is doing. When you look at your annual revenues, you can see if they are increasing, staying the same, or decreasing from year to year. This may have an impact on commercial decisions you make.
How to Calculate a Company’s Annual Revenue?
The calculation of annual business revenue is straightforward. To do so, you only need to know the prices at which you sold products or services, as well as the quantity of each product or service sold. Simply add together your annual sales to determine your entire annual revenue.
If you don’t have this number, you can multiply the number of things you sold in a year by the price you charged for those products. This yields your gross sales revenue. You can use the following calculation to determine your annual revenue:
Annual Revenue = Number of Products or Services Sold X Sales Price
If you sell different items and services at varying prices, you would use the above formula to calculate the revenue for each product or service, then add the totals to determine the total revenue from your business’s operations.
Next, add any other income (including investment income or asset sales) earned by your business over the year to calculate your total yearly business revenue.
Here’s an example of how to calculate annual income. Assume you sell candles for $10 each. You sold 30,000 candles last year. To calculate your gross revenue for the previous year, multiply the number of candles sold by their price: 30,000 x 10 = $300,000
Subtract your cost of products sold and any discounts you provided to calculate your net sales. Assume you had a total of $75,000 in discounts and cost of goods sold. As a result, your net revenue is: 300,000 – 75,000 = $225,000
If you use accounting software, your annual revenue (or monthly, if that’s what you’re looking for) can be found in your profit and loss statement, as well as other financial statements.
As a small business owner or a startup owner, you must keep track of a lot of numbers. Your annual business revenue is one of the most crucial. This figure represents the entire amount of money your company earns in a year through the sale of goods and services, plus any other income.
You won’t be able to tell if your business is lucrative unless you know how much money you’re bringing in. Annual revenue is the beginning point for calculating net revenue, which informs you whether your company’s sales are exceeding its costs and turning a profit.
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