Business Profit and Revenue Measures

Flashcards covering definitions, calculations, importance, and strategies related to business revenue, costs, and profit.

What is revenue?

The income received from an organisation's buying activities, also known as sales, income, turnover, or takings.

How is total revenue calculated?

Units sold multiplied by the average selling price.

What are the two main ways for a business to increase revenues?

Increase the quantity (amount) sold or achieve a higher selling price.

What is one strategy to increase the quantity of units sold?

Cutting the price or offering volume-related incentives (e.g., 2 for 1).

What is the best way to achieve a higher selling price?

To add value to the product or service.

What do business costs represent?

The amount a business incurs to make goods or provide services (outgoings), including expenses like salaries, rent, supplier payments, utilities, tax, machinery, and raw materials.

Why are costs important in a business?

They drain away profits, are the difference between a good and poor profit margin, and are a main cause of cash flow problems.

How do costs typically change in a business?

They change as the output or activity of a business changes.

What is profit?

The reward or return for taking risks and making investments.

How is profit calculated?

Revenue minus total costs.

Why is profit important to a business and its owners?

It makes it easier to attract investors, a profitable business might be bought by a larger rival, and it tends to have suppliers who are more willing to allow trade credit.