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How to Calculate Revenue for a Startup?

All enterprises and startups aim to improve their sales and profit unless they are non-profitable. Read this article to know more about the calculation of revenues for a startup in India.

For an entrepreneur who has recently started a business, it is essential to understand the fundamentals of revenue. He should know how to predict the revenue and calculate the amount.  For new business professionals who have started their business through the help of seed or have taken funding from any investor, revenue calculation and generation become necessary.  Business owners and investors will not show any interest in investing in the startup unless the person who is about to have his startup has an efficient revenue generation structure or model. They won’t consider their hard work or passion behind the startup.

Business leaders consider various metrics to predict and understand their startup’s financial status. Total revenue is one such metric that is essential to understanding cash flow. It plays a key role in determining the pricing of various products and services. Unprofessional entrepreneurs who are unaware of the fundamentals can face many problems regarding understanding revenue. All entrepreneurs must understand how profit and loss are generated and the significance of revenue. Entrepreneurs must have sufficient knowledge to understand the profits and losses of their businesses.

How Should an Entrepreneur/ Business Person Calculate the Costs Involved in the Startup

To calculate the revenue for any startup, the business professional should determine some figures first. The startup cost is one such crucial metric. Startup costs involve all the costs used for setting up a business. The value of startup costs will vary for different enterprises, depending on their size, services, products, and other factors. These costs are a vital part of calculating the revenue and the profit margin. Such costs need accurate ascertaining and apportioning in the product value while the professionals determine the product value. Prediction of startup costs is an essential plan for business plan creation. This idea regarding the capital required in setting up the startup will help find funds and capital from reputed businessmen and potential investors. For any startup, the cost involved in land, machinery, equipment,  office supplies, and many more are the startup costs.

How Should an Entrepreneur/ Business Person Calculate the Post-startup Costs

The post-startup cost is another essential measure for calculating the revenue involved in a startup. Post startup costs are the second level of costs that any entrepreneur needs to consider for determining and calculating the total revenue generated from the startup. The post-startup cost is the cost involved in the startup from the time it gets set up till it begins to generate revenue. Entrepreneurs must ensure the product price only after considering all necessary factors. If the price gets fixed without considering all the factors, it may result in huge losses and fail to give a proper idea of revenue generation. In any startup, the costs of electricity, manpower, delivery expenses and other expenses must be taken into consideration, before fixing the product price.

How Should an Entrepreneur/ Business Person Calculate the Profit Margin

Profit margin is the main metric in any revenue calculation involved in any enterprise. After the startup and post-startup costs are determined, the product price must be fixed after considering these factors and an additional profit margin.  However, setting any profit margin may have an adverse effect. It is crucial for business professionals to consider the pricing of the market, the industry leaders and its competitors before the product cost gets finalised. Profit margin determines the profit and the prospect of any startup. Profit margin should always be optimum. If it’s too high, it will reduce sales as customers will look for cheaper alternatives. If the profit margin is too low, it will be an obstacle to the growth of the business.

How Should an Entrepreneur/ Business Person Calculate the Annual Revenue?

The annual revenue is the determining factor for the startup. It is the metric which will ultimately decide if the startup has become successful or is still in its struggling phase. Business experts and sophisticated professionals use complex formulae to calculate the annual revenue, while entrepreneurs use a relatively simple formula.

If there are multiple categories of products or services, the total annual revenue will be the sum of the total cost of all products of different categories sold in that year.

  1. Total annual revenue is not total profit.
  2. Use the formula given below to calculate annual profit.
  3. Gross Profit = Total Annual Revenue – overhead expenses
  4. The overhead expenses include startup, post-startup, and all other costs involved in the product or service.
  5. Deduction of taxes and additional expenses is done from the profit to get the actual profit.
  6. The amount can fall under three categories- loss, profit or breakdown.
  7. If the expenses are equal to the annual income, the entrepreneur has reached a break-even point. It means no profit or loss.

How to Calculate the Revenue Growth

After the calculation of the annual revenue gross profit is complete, the entrepreneur has to check the revenue growth. It is the final step to calculate the total revenue and the growth of the business. The revenue growth is compared with the annual revenues of successive periods, and a percentage figure is decided.

The above formula will work as an aid for calculating a percentage figure for determining the growth rate of the startup on an annual basis. For professional and more accurate calculations, it is best to consult a professional accountant who knows how to use complicated formulae to determine the percentage and growth rate more accurately. Get Your Business Setup Calculator


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