As a small business owner, you’ll want to know what constitutes good revenue and how a small business is defined. Once you have those numbers, you can look at others in your industry and employ strategies to increase your small business revenue.
How is a Small Business Defined?
The Small Business Administration’s size standards are based on average annual revenues and 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.
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
Ways to Increase Business Revenue
Depending on your industry, there are tried and true ways you can increase your business revenue.
- Increase the number of customers: In short, bring more business in the door. Even if transaction sizes stay the same, more customers = more revenue.
- Increase the frequency of transactions: This means encouraging people to purchase from you more often. If your average customer comes in once a month, convincing them to patronize your business once a week will increase your revenue.
- Upsell: This is when you encourage your customer to purchase more of your goods or services. For example, if you own a beauty salon, suggest a manicure in addition to a haircut. If you own a restaurant, upsell additional purchases like drinks, appetizers, or a dessert.
- Raise prices: If your prices go up, you’ll collect more revenue from every purchase a customer makes – with the same amount of effort. If you’re feeling uneasy about this strategy, check out these suggestions from American Express: 12 Ways to Raise Prices Without Ticking Off Your Customers.
What is Business Revenue Trend?
If you’re seeking a low-cost SBA loan, banks will look at your Business Revenue Trend. This metric is a percentage that reflects the revenue growth of your business over time and illustrates how your sales have increased, decreased or plateaued. This is considered a more valuable measure of financial health than just flat revenue numbers per year.
Banks like to see a positive trend because it shows business growth and suggests that a business will continue growing with a loan they can repay. You can calculate your Business Revenue Trend by looking at the average growth in revenues from your earliest tax return to your most recent tax return.
Of course, your business is more than just your revenue trend. It’s just one of 7 key criteria banks use to evaluate your business when you apply for a business loan.
To learn more about the 7 criteria and help you increase your likelihood of approval when applying for low-cost funding, sign up for our no-cost online educational tool, SmartBiz Advisor. This tool helps you learn how banks typically evaluate your business and recommends ways to increase your likelihood of approval when applying for the low-cost SBA and bank funding you deserve.
* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.