Thinking of ditching the 9-5 grind to do your own thing? You’re not alone.
According to Fundera, there are more than 30 million small businesses in the U.S., and together they represent a whopping 99.9% of total businesses and employ almost half of the country’s workforce.
And we get it. Entrepreneurs enjoy numerous benefits: from being your own boss, to controlling your work hours, pursuing your passion and more.
But how much revenue does your startup really need to make your dreams a reality? Let’s take a closer look at some common faqs and other small business revenue statistics.
Why is small business revenue so important?
According to the U.S. Census Bureau, revenue includes all gross receipts, sales, commissions and income from trades and businesses — so it’s essentially the total amount of money your small business makes before you deduct your expenses like taxes, payroll, and insurance. It’s important because (assuming your expenses remain relatively stable), the more revenue you earn, the more profit you will have.
It’s also important because, according to a U.S. Bank study, more than 80% of businesses that failed did so due (at least in part) to cash flow issues — meaning they didn’t have enough revenue to cover their expenses and expand.
If you’re a new business owner trying to avoid the same fate, you’ll want to use your income statements and tax returns to track your average annual revenue and evaluate its growth over time. This is known as your “business revenue trend” and it helps demonstrate how your sales have increased or decreased so you can make decisions about when and how to expand your operation or cut back on overhead costs. It’s also a critical factor that the U.S. Small Business Administration (SBA) and other lenders use to determine if you qualify for small business loans or advancements.
(For more help tracking your annual sales and expenses if you’re self-employed, check out our tips for basic bookkeeping.)
How much revenue should my small business bring in?
The average small business revenue is about $44,000 a year, but what your business will make depends on a variety of factors:
- Industry: If you’re in a more profitable industry, like fitness training, newborn/post-pregnancy services, or life coaching, your small business will likely be on track to bring in more income.
- Location: Living in a more expensive city like New York or San Francisco can also impact your revenue. This is because you’ll need to pay yourself (or your employees) more to account for the cost of living — and more money spent on payroll means less money in your business’ proverbial pocket.
- Business plan: How you earn your business’ income matters too. How many overhead costs do you have? Do you have a large number of employees? What target market are you after? And how confident are you that you can market to them effectively? Questions like these will help guide how much revenue you’ll need to keep up with costs and still have room for growth.
To determine the specific amount of revenue you should strive for as a small business owner, you’ll need to calculate your monthly expenses. These might include:
- Rent or other payments: If you lease or own real estate like an office space or warehouse
- Utilities: Like the cost of your electricity, heat, water, phone or internet bills
- Insurance: To protect your company against physical damages and liability
- Salaries: Including wages, benefits and health care for you and your employees
- Inventory expenses: Like the cost of materials you need for production
- Marketing costs: To pay for advertising assistance or purchase ad space
Think of these fixed costs like “credits” — they represent an amount of money you need to pay to keep your business afloat, like charges accruing on a credit card bill. The revenue your business brings in is like a “debit” — it’s positive cash flow that you can use to pay the bill. So, if your business’ total monthly expenses (“credits”) come in at $10,000, you’ll need to generate at least $10,000 in monthly revenue (“debits”) to break even.
But remember: breaking even isn’t the end goal. To ensure your business can grow and adapt to changing circumstances, you’ll want your revenue to exceed your expenses. The best way to do that is to identify your revenue streams (i.e. where your current earnings are coming from), and find ways to increase them.
How can I boost my small business revenue?
Every situation is different, but here are some common ways small business owners can increase revenue:
Expand your products or services
Offering more options will increase the likelihood of a sale and boost your revenue as a result.
If you’re a fitness trainer, for example, you may want to expand your standard 8-week program to include a shorter 4-week and longer 12-week option. Before you make any big decisions, survey your existing clients or conduct external research to get a sense of what’s valuable to them.
Raise your prices: Increasing prices is an easy way to collect more revenue without having to make any additional sales.
Before you go this route, just be sure you can justify your price in the context of what your competitors are offering. You’ll also want to understand the “perceived value” of what you’re selling — which is essentially how desirable your product or service is to your client. If you overestimate this value, customers may walk away because they’re just not willing (or able) to foot the higher bill.
Increase your marketing efforts
Raising your advertising expenses is worth every penny if it connects you with enough customers.
To get the most bang for your buck, start by analyzing your purchase data and prior marketing efforts to identify what’s working. From there, you can develop targeted ad campaigns that will help convert more clients.
If your budget is limited, consider boosting your content marketing efforts by increasing your presence on social media or creating blog content that showcases your expertise.
Another great way to increase revenue is by using promotions that will appeal to your audience.
Use what you know about your target market to develop an offer that will incentivize them. It could be something as simple as a discount on their first appointment or a loyalty program that rewards them after so many sessions. Just be sure that you advertise the offer so potential clients can take advantage of it.
Bonus: ads with a promotional offer tend to perform better, too!
Find new customers or markets
Just like offering more products or services, finding new clients all comes down to probability: the more people you target, the more sales you’re likely to get.
If you’re not sure where to start, ask your clients for referrals and give them a small discount or rebate for doing so. You could also expand your offering to a different demographic, so if you run a bakery, for example, you could add vegan or gluten-free options to your menu.
Improve your customer service
Small business owners are notoriously busy, but improving your client experience really will help you stand out from the competition and encourage people to keep coming back.
You can always set up a simple customer feedback survey to see what’s top of mind for your clients and take it from there.
Thinking outside the revenue box
At the end of the day, revenue is undoubtedly a critical component of your business’ performance — but it’s not the only one. Other factors like profit margins, customer satisfaction and market share each have their own role to play too, so it’s important to properly educate yourself before you set out on your own.
If you’d like to learn more about all things small business-related — from finances to taxes, customer communications, marketing and more — check out Practice's Blog.