Small Business Revenue: Determine Where You Stand

Why is revenue important?

Revenue is important for exactly the reason you think it matters: Less money means less profit. If all your expenses remain equal during a period in which your revenue declines, your business will be less profitable. Likewise, if all your expenses remain equal as your revenue increases, your company will be more profitable. Whether you’re working at a large firm or a startup, revenue is especially important.

Revenue formula

You can calculate your small business revenue using either of the below formulas:

Revenue = Number of product or service units sold * average price

or

Revenue = number of customers * average item price

The first formula may be more useful for small business owners who offer a relatively narrow selection of products or services at fixed prices. The second formula may be more useful for consumer-facing companies that sell several items at a wide range of prices. In either case, the most accurate way to calculate revenue is to multiply the total sales quantity of each product or service by its sales price, then add all your total revenue figures.

How is a Small Business Defined?

The Small Business Administration’s size standards are based on average annual revenues and the number of employees. A business must make between or below $750,000 and $35.5 million and have between or below 100 and 1,500 employees depending on the industry.

Using NAICS to Determine Industry Norms

The North American Industry Classification System (NAICS) is the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the economy. You can access the NAICS database to look at your industry on the census bureau website here.

Why is the Small Business Definition Important?

Size and revenue statistics shouldn’t discourage business owners that are struggling to generate revenue. Instead, the numbers can help you understand that small businesses cover a large spectrum. In a time when global connectivity makes it possible for all types of entrepreneurs to start and run businesses, it’s good to see the stats behind your business community.

What is the Average Revenue of Small Businesses?

The average revenue for small businesses is broken down between those with no employees and those that have employees. As you read the below revenue figures, it may help to remember that small business revenue isn’t necessarily the amount of money you’ll take home as a small business owner. Across all small business sizes and revenue values, small business owners currently earn an average annual personal income of $68,153.

Small Businesses with No Employees

Eighty percent of the small businesses in the United States do not have employees. On top of that, more than half of all small businesses are home-based businesses, with construction companies leading the way.

The average revenues (not profit) of small businesses with no employees is $44,000 per year. Two-thirds of these businesses earn less than $25,000 per year.

Small Businesses with Employees

Small businesses with employees tend to fare better, with average earnings of $4.9 million per year. Revenue typically increases as a company’s number of employees increases. The below small business sizes and average 2020 annual revenues best showcase this trend:

• One employee: $44,000
• Two to four employees: $387,000
• Five to nine employees: $1,080,000
• 10 to 19 employees: $2,164,000
• 20 to 99 employees: $7,124,000
• 100 to 499 employees: $40,775,000

As these numbers suggest, you may be able to make your company a million-dollar operation with fewer than a dozen employees. However, after subtracting your expenses from your revenue, your profit might fall below the million-dollar mark.

How much do small business owners really make?

As mentioned earlier, the average small business owner’s annual income is currently $68,153. However, there’s more than meets the eye with this number. In 2019, small business owners earned between $29,462 and $160,606 in annual personal income. This range is quite broad, and the following factors may account for income differences:

• Industry . Industries such as software, healthcare support, and oil are considerably more profitable than trucking, publishing, and food processing . Small business owners in the former set of industries are more likely to make more money than those in the latter set.
• Gender . In 2020, women in all types of work and of all experience levels were paid $0.82 per dollar that men were paid. Women with more experience, education and other compensable factors such as owning a small business still earned less than men at a rate of $0.98 to every male dollar.
• Location . Since the cost of living varies throughout the U.S., location is a major factor in small business owner incomes. In cities such as New York and San Francisco that are more expensive, business owners sometimes pay their employees more, thus leading to less income for themselves. Alternatively, these business owners may take more money for themselves too given their living costs, thus leaving the company with less cash.
• Age . Small business failure becomes more likely the longer your company exists, and you may need to take less of your business profit as personal income to stay afloat. On the other hand, if your business grows steadily, then the longer your company has existed, the more money you might make from it.