Calculating Your Annual Gross Income: A Step-by-Step Guide For Retail Startups

For retail startups, being able to calculate your annual gross income will help you determine how successful your business venture is looking.

A new business can be a daunting task, not knowing exactly what is around the corner. With small businesses making up 99.2% of the total business population in the UK, it’s clear that startups are the backbone of the economy. However, the high rate of SME failures highlights the importance of good cash flow management.

Keeping an eye on your financial data to decipher what decisions need to be made next will ensure you make the right choices for your startup.

In this guide, we show how you can calculate your annual gross income step-by-step and help you understand how your annual gross income can be used to take your business to the next level.

What Is Gross Income?

In 2022, 60% of SMEs in the UK reported that they had made a profit in the previous 12 months, compared with 8% that broke even, and 18% that made a loss.

Gross income helps a business understand how much they are making from sales alone, not taking into account any of their operation costs.

When it comes to starting up a new retail business venture, knowing how much money is being brought in will define whether your pricing strategy is effective. By comparing it with ongoing overhead costs, such as rent, bills, and salaries, you can establish whether cuts need to be made or whether the pricing of your products needs to be reconsidered.

Instead of searching ‘How much do small business owners make?’, take matters into your own hands and figure out exactly how your profit margins compare.

Calculating Annual Gross Income

There is a simple formula that can be used to calculate your annual gross income;

Gross income = Gross revenue - Cost of goods sold

To help you accurately use this formula and calculate your annual gross income, let’s break down the three simple steps that can be taken.

1. Calculate gross revenue

Gross revenue is the total amount of money a business earns in a year, not accounting for any expenses.

For a retail startup, this will primarily consist of product sales, both through a physical store and online channels. If your business also offers paid services, whether that be repairs or fitting fees, these will also be included in your gross revenue.

To calculate your annual gross revenue, simply add up all of the transactions made over the year. Your monthly sales reports will be a good way to source this data, providing you with an overall figure for each month of the year.

If your business is still in the early stages and hasn’t been in operation for a full year, you can use projected sales figures. To do this, take a monthly average of the revenue you’ve made so far, and multiply this by twelve to get an estimated annual figure.

1. Calculate the cost of goods sold

The cost of goods sold (COGS) refers to the costs directly associated with the production of goods.

The bulk of this figure will include the raw materials used for your products or the wholesale price of the items you sell. It will also incorporate the packaging materials and the labour needed to produce the goods.

The COGS should not include any costs from general selling expenses. Costs such as distribution, marketing communications, or management salaries are not considered COGS and should be kept separate.

If your business has varying costs across different products, group them based on categories and add these figures together. An example of this is as follows:

Product X costs £100 per unit. 200 units sold would be £100 x 200 = £20,000.

Product Y costs £250 per unit. 50 units sold would be £250 x 50 = £12,500.

Total COGS would be £20,000 + £12,500 = £32,500.

1. Subtract COGS from gross revenue

Now that you have two figures, subtract the GOCS from your gross revenue to reveal your annual gross income.

How Gross Income Can Be Used To Elevate Your Business

Your annual gross income figure can hold a lot of power within your retail startup. Providing significant insights into the success of your new business, the next choices you make can be informed by the gross income, helping inform your business decisions.

If the margins between your gross revenue and COGS are slim, action needs to be taken to help improve profits. Whether this be reducing ongoing overheads or increasing the prices of your products, being able to forecast your cash flow will allow you to take the necessary action.

On the other hand, if your gross income has revealed positive sales figures, there is an opportunity to grow your retail business and take it to the next level. Whether you use the revenue to invest in a new marketing campaign or launch a new product line, the opportunities are endless.