One of the most important indicators of the organization is gross income. What is it, every entrepreneur should know. It is this figure that will help determine the effectiveness of work and adjust the strategy.
Gross income: what is it?
Gross income is the amount of funds received by an enterprise as a result of its core business. This is the final financial indicator, which reflects the cumulative result of the enterprise in the field of economics, management and marketing. It is worth noting, considering gross income, that this is not only an individual, but also a macroeconomic indicator. So, gross income is considered at the state level.
In some countries, this term is associated with a concept such as "turnover." If we are talking about non-profit organizations (public, charitable foundations, etc.), gross income means the annual amount of financing or gratuitous contributions.
The value of gross income
Gross income from the sale of products is the basis for the functioning of the enterprise. Its meaning is as follows:
- reimburses depreciation accrued on non-current assets;
- used to pay taxes, fines and penalties, as well as other deductions to the state treasury;
- is a source of salaries and bonuses for employees;
- acts as the basis for the formation of net profit and further development of the enterprise.
Gross Income Generation
One of the most important indicators in the activities of any organization is gross income. What this can be understood by understanding the mechanism of its formation. So, this process includes several stages:
- Production of goods (or services).
- Market launch with niche definition.
- Implementation to the end consumer.
- Revenue generation.
What gross income includes
This indicator is much wider than cash receipts from the main activities of the organization. So, the components of gross income are as follows:
- funds received to the account of the organization by a court decision;
- fines paid by third parties;
- material assets stored in accordance with the contract;
- insurance reserve;
- financial assistance or charitable contributions;
- royalties and dividends;
- income from the sale of securities;
- insurance proceeds.
Intangible component
It is worth noting that gross income also has an intangible component. It may include income from:
- investment and reinvestment;
- savings in pension accounts;
- not cashed bank deposits;
- assistance under international financial agreements.
How to calculate
The calculation of gross income is carried out in several stages. So, you must perform the following steps:
- First you need to calculate the total gross income. To do this, you need to subtract direct material costs from cash receipts from the main activity.
- Determine the total cost of manufactured products for the period (if necessary, add value).
- Find the product of the number of units of goods (services) and the cost of their implementation. All other components of gross income are added to the obtained indicator.
Calculation Methods
There are several methods for calculating gross income. So, to calculate this indicator for turnover, you need to find the product of total turnover and trade margin, and then divide the resulting number by 100. This technique can be used if the premium for all products is the same.
If the company produces a wide range of products with different trade margins, you need to find a product for each product separately, and then summarize. The result, as in the previous case, is divided by 100.
The easiest way to calculate gross income, which is appropriate in almost any enterprise, is by the average percentage of gross income. This indicator is multiplied by the total turnover and divide the product by 100.
Factors Affecting Gross Income
Net gross income is one of the key indicators reflecting the results of an enterprise. The following factors can influence this value:
- The volume of products, as well as its range and structure. The more goods sold, the higher the gross income indicator.
- The size of the trade allowance. Its feasibility and validity is inextricably linked with the indicator of gross income.
- The presence of additional services that increase the prestige of the product and stimulate demand for it.
- The presence of additional revenue, as well as the quantity and stability of its sources.
Gross Income Planning
Knowing how to calculate gross income, you can plan its value in advance. This process is simply necessary for the successful operation of the enterprise. Simplified, this process can be explained as a prediction of the difference between the reporting and planned indicator. It is worth noting that the planned gross income does not include VAT, proceeds from the withdrawal of fixed assets and the sale of intangible assets and currency.
Proper planning is the key to the prosperity of the enterprise. As for gross income, this indicator should include not only costs, but also net profit, the value of which will be significantly higher than in the reporting period. Also, in addition to the expected revenues, it is important to plan for possible losses when planning. They may be as follows:
- losses of previous periods that may be identified in the planning year;
- losses from markdowns of goods due to lower demand;
- risk of cancellation of orders;
- possible legal costs and fines.
Success factors
It is worth noting, studying gross income, that this is one of the main indicators illustrating the results of the organization. For her work to be successful, it is worth adhering to the following principles:
- in order to establish itself well in the market, it is important to find the best value for money;
- the production capacities at the enterprise must be sufficient to produce a quantity of products satisfying consumer demand;
- you need to constantly monitor market conditions in order to timely make changes to the assortment or expand it;
- special attention should be paid to logistics (the cost of delivering products to the consumer should be minimal).
