How to calculate and report annual business revenue

Annual revenue represents a company's total sales activity over the course of a year. It's one of the most important figures on your regular financial statements because it's a key indicator of growth potential and overall financial health.

In this guide, we walk through what annual business revenue means, how to calculate it, and where it shows up in your accounting and financial reporting. We also cover how to report revenue on credit or loan applications and common mistakes to avoid.

What is annual revenue?

Annual revenue is the total income your business generates from its core activities over a 12-month period, before deducting any expenses, taxes, returns, or discounts.

Sometimes called gross annual revenue or total sales, annual business revenue comprises all income from the sale of products and services but excludes revenue from other income streams, such as interest earned from investments or gains on selling assets. Think of it as the top line on your income statement: the raw sum of your company’s sales activity.

Annual business revenue is a key indicator of your company's financial health and reflects its ability to generate cash and fuel operations.

Why is annual revenue important?

As a business owner, knowing your annual revenue helps you understand how much money your business is bringing in each year and whether sales are headed in the right direction.

When you track this number consistently, you’ll start to notice patterns, such as which months are busiest or which products are gaining traction. This can guide smarter decisions about where to focus your time and resources.

Annual revenue is also key when it comes to building financial credibility. Lenders, investors, and credit card issuers often ask for this number when evaluating your business for funding or financing.

Your annual revenue helps demonstrate the size and earning potential of your business, and accurate revenue reporting can make or break your chances of securing financial support.

How to calculate annual business revenue

To calculate your business’s total revenue over a 12-month period, start with this simple formula:

Annual revenue = Total sales + Service fees + Other operating income

Here’s how to break it down, step by step:

1. Gather your financial statements: Start with your income statement and balance sheet. These documents contain vital information about revenue, expenses, and assets.
2. Identify the relevant line items: Look for items such as gross sales, net sales, and total revenue on your income statement
3. Choose the right time frame: Make sure you're reviewing annual totals, not just monthly or quarterly figures
4. Account for adjustments: If you issued refunds, discounts, or allowances, you’ll want to adjust for those to calculate your net revenue. For more complex scenarios, consult with a financial expert or accountant.

Cash vs. accrual accounting methods

Your revenue calculations may vary depending on the accounting method your business uses:

• Cash accounting records revenue only when you receive payment
• Accrual accounting records revenue when you earn it, even if the customer hasn’t paid yet

Let’s say you run a small business selling handmade earrings at $50 per pair. In December, you make a large wholesale sale worth $10,000. The customer pays you in January.

If you use cash accounting, that $10,000 counts as revenue in January, when the money hits your account. If you use accrual accounting, it counts as revenue in December, when you made the sale and fulfilled the order.

Annual revenue vs. profit and net income

Business owners often use the terms revenue, profit, and net income interchangeably, but they’re not the same thing. It’s important to know the difference, especially when applying for credit or tracking your company’s financial health:

• Annual revenue is the total income your business earns from selling products or services over a 12-month period, often referred to as the top line. It doesn’t factor in taxes or expenses like COGS.
• Gross profit is what’s left after subtracting the direct costs of producing your goods or services from revenue
• Net income, often referred to as the bottom line, is your profit after deducting all business expenses from your gross revenue. This includes operating costs, taxes, interest, and depreciation.

Gross revenue vs. net revenue

Many credit applications ask specifically for gross annual revenue, but it’s important to understand both gross revenue and net revenue when evaluating your overall financials:

• Gross revenue is the total amount earned from sales before any deductions within a given reporting period
• Net revenue is your gross revenue minus returns and allowances, such as discounts or price reductions, within a period

Let’s extend our example of the small business that sells handmade earrings for $50 a pair. In one year, you sold 12,000 pairs, had 200 returns, and offered a 20% discount on 2,000 pairs as part of a summer sale:

• Gross revenue: 12,000 * $50 = $600,000
• Returns: 200 * $50 = $10,000
• Allowances (discounts): 2,000 * $10 = $20,000
• Net revenue: $600,000 – $10,000 – $20,000 = $570,000

While gross revenue shows the total income you brought in, net revenue gives you a more realistic view of what your business actually retained from those sales.

Common misconceptions

It’s easy to misinterpret financial terms, especially when reporting business income. Here are a few common misconceptions:

• Mistaking revenue for profit: Annual revenue is your total income before expenses. Profit is what’s left after you subtract expenses. These figures aren’t interchangeable.
• Reporting the wrong number on credit applications: Most business credit cards and loans ask for gross annual revenue, not profit or net income. Double-check what your lender is specifically requesting.
• Leaving out parts of your income: If your business earns money from service fees, subscriptions, or rentals that are part of your core operations, you should include them in your revenue total
• Assuming recurring revenue applies to every business: Annual recurring revenue (ARR) is helpful for subscription-based companies, but not all businesses will use this metric

What is a good annual revenue for a business?

Whether your annual revenue is within the right range for your business depends on a few factors:

• Industry: Different industries have vastly different average revenue benchmarks. A tech startup might aim for high growth and rapid revenue increases, while a local coffee shop might be happy with steady, moderate revenue.
• Business stage: Early-stage businesses naturally have lower revenue than established companies. Regardless of the stage, a company should focus on maintaining consistent growth and exceeding internal milestones rather than basing comparisons on industry giants.
• Business model: High-volume, low-margin businesses need significantly more revenue than niche, high-margin businesses to achieve profitability. You need to understand your business's cost structure and target margins to establish realistic revenue goals.

Here's a rough gauge of good annual revenue based on business size:

• Small businesses (1–50 employees): $50,000–$5 million in annual revenue
• Medium businesses (51–250 employees): $5 million–$50 million in annual revenue
• Large businesses (251 or more employees): $50 million or more in annual revenue

It's important to point out that these are just broad indicators. Defining small, medium, and large businesses is often based on various factors, including industry, employee count, and revenue. You’ll need to set attainable targets for growth based on your business’s circumstances.

Best practices for reporting and analyzing annual revenue

Accurate revenue reporting helps you understand your business’s financial health and makes it easier to apply for credit or loans. Here are a few tips to optimize your reporting process:

Keep consistent records

Choose one accounting method, cash or accrual, and use it every year to keep your reports reliable and consistent. Stick to the same 12-month time frame when calculating annual revenue. Small business accounting software can simplify the process and reduce the chance of mistakes.

Use audited statements

Audited financial statements provide an extra layer of credibility because they’re verified by an independent party. Small businesses may not always need them, but lenders and investors often require audited statements for larger loans or funding rounds. Having these documents ready can speed up the approval process.

Forecast future revenue accurately

If you need to project revenue for a loan or credit application, base your estimates on actual sales data, contracts, and realistic growth expectations. Overestimating can hurt your credibility, while reasonable, data-backed forecasts help lenders see your business as stable and trustworthy.

How to report annual business revenue on a credit card application

Your annual business revenue often plays a key role in determining your eligibility and credit limit when applying for a business credit card or loan.

Lenders and credit card issuers typically look at your gross annual revenue, meaning the total income your business earned over the past 12 months before deducting expenses or taxes. This figure helps them evaluate your business’s financial strength and its ability to repay credit.

Consider these factors when reporting your revenue on a business credit application:

• Report accurately: Provide the most accurate and up-to-date information available. Use documentation such as your tax returns, profit and loss (P&L) statements, or audited financials to support your reported number.
• Have supporting documents ready: Gather any relevant paperwork, including income statements, balance sheets, and bank statements, in case you have to verify your revenue
• Understand what else matters: In addition to revenue, lenders often evaluate your business’s age, credit history, outstanding debts, and even your personal income if your business is new

Streamline your accounting process with Ramp

Once you understand how your business earns and reports revenue, the next step is making sure your accounting processes run just as smoothly. Ramp’s accounting automation software can help your finance team save time, reduce errors, and close the books faster, without the manual busywork.

We automatically collect expense receipts and memos from employees, categorize transactions based on past activity, and sync everything to your accounting software or ERP in real time. Instead of reviewing every line, you’ll only be notified when something needs attention.

Ready to get started? Learn more about Ramp with an interactive product tour.