What is gross income? Gross income is an individual’s total earnings before taxes and other deductions. For individuals, gross income is the total of their paycheck or wages, from any and all sources including pension and interest, pre-tax.
Gross income in business
Gross income in business is gross revenue, minus direct costs. In business, gross income is the simplest measure of a company’s profitability, as it includes direct costs (also known as cost of goods sold, or COGS) but does not include other costs your business may incur. Gross income is sometimes referred to as gross margin. There is also gross profit margin (which is defined as a percentage) – so be sure you’re looking at the right figure, if you’re just getting started.
Gross income often appears on a company’s income statement – it’s often referred to as the “top line.” Net income, in comparison, is similar – but takes into account any additional fees and expenses, such as taxes, interest and advertising.
How to calculate gross income
Gross Income = Gross Revenue − Direct Costs
A simple equation, but the thing that can be tricky here is that people often describe the terms in this formula using different words for the same ideas.
For instance, revenue is often called total sales or turnover, and direct costs are commonly known as the cost of sales or the cost of goods sold (COGS), especially for businesses that make or resell products.
How is gross income used?
Companies might be interested in their gross income because it’s a simple snapshot of how profitable a company is. This figure is converted into gross profit margin – a metric, represented as a percentage of the businesses income, typically over the course of a year. In simplest terms, gross income lets you know how much you have, whereas gross profit margin can give you an indicator of how profitable you are. Remember, gross income excludes costs related to advertising, taxes, and administrative costs – so it may be very different from the number you can expect to see in your account at the end of a term.
Gross income is just one figure in a suite of many that can inform your business decisions and help you to set yourself up for success. Read about other useful terms – like EBIT, gross profit, and net profit.
Getting your business finances under control
If you’re looking to start a business or simply get a better handle of your business finances, we recommend you start with a great business account that gives you super clear information and helpful tools to manage your business. Revolut Business offers a suite of features that will help supercharge your growth by keeping you organised – which is the first step toward calculating your gross income and becoming more profitable.
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Learn more about Open Banking and Revolut Business.
End-to-end expense management
Our company cards help you to automate your expenses and capture receipts in the app instantly. We’ll even send your team helpful reminders to add expense details and receipts images, so you’ll never have to nag again. Then it’s up to your accountants and administrators to simply review expenses and reject or approve them – and even upload or import files to their accounting platform of choice.
You can create a virtual card for each of your recurring payments – such as software subscriptions and office space membership. This means never overspending again on subscriptions – you can manage, limit and cancel your subscriptions from one place.
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