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Revenue, Costs, and Profit: The Foundation of Business When running a business, understanding how money flows is crucial. The three essential elements are: Revenue: The total income from selling goods or services. Costs: Expenses incurred to operate the business, split into fixed and variable costs. Profit: The money left after subtracting costs from revenue. Now, letโs dive into each concept through the lens of Sweet Success Cupcakes, a small bakery youโve just started. Revenue: The Starting Point Revenue is the income your business generates from sales. It depends on two factors: The price of each item. The quantity sold. Formula: Revenue=Price per UnitรUnits Sold Sweet Success Example: You sell cupcakes for $3 each. In your first week, you sell 200 cupcakes. Revenue=3ร200=600dollars. This $600 represents the total money your customers paid. Costs: The Expenses Costs are the money you spend to keep the business running. These are divided into two categories: 1. Fixed Costs: These remain the same regardless of sales. For example: Rent for the shop: $500/month Weekly fixed cost (if divided evenly) Fixed Cost per Week= 500/4 โ=125dollars. 2. Variable Costs: These depend on production or sales volume. Each cupcake costs $1 in ingredients. If you sell 200 cupcakes: Variable Costs=1ร200=200dollars. Total Costs: The sum of fixed and variable costs: Total Costs=Fixed Costs+Variable Costs For Sweet Success in Week 1: Total Costs=125+200=325dollars. Profit: The Reward Profit is what remains after paying all costs. Formula: Profit=RevenueโTotal Costs Sweet Success Example: In your first week: Revenue: $600 Total Costs: $325 Profit=600โ325=275dollars. This $275 is your reward for running the business. Key Takeaways Revenue: The more you sell or the higher your prices, the greater your revenue. Costs: Understanding and managing fixed and variable costs is critical to maintaining profitability. Profit: Maximizing profit requires balancing revenue growth and cost control. Follow Our Medium blog for Finance and Business insights like this: https://medium.com/@FoundrBite
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The ABCs of Entrepreneurship and Business As an entrepreneur or business professional, it's important to have a solid understanding of key terms and concepts. Here are some essential terms you should know: 1. Profit Margin: - Formula: Profit Margi
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Day 4 Business Terms Contribution Margin โ The Profit Clue Most Businesses Ignore Most founders talk about revenue and profitโฆ but ignore what really drives profitability: Contribution Margin. What is it? Contribution Margin = Revenue โ Variable C
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๐ฐLearn Start-up Maths โ( Concept - 2 )๐ ๐ฑ All details about โ COST โ Whenever someone asks you about the cost just tell him that โ Cost the amount of money that a business spends on the creation of something โ โข There are many types of cost #
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Day 1 Business Terms 1. Revenue vs. Profit โ "Revenue is what you earn, profit is what you keep. A startup making โน10L/month in revenue but spending โน9.5L has only โน50K profit. See the difference?" 2. Burn Rate โ "How fast are you burning cash? I
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Profitability Metrics These are the stages of profitability every founder should be familiar with (Refer the table below) In the beginning, Start with Contribution margin (CM)- measure if your revenue covers variable costs. Next, target transacti
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The ABCs of Entrepreneurship and Businesses #Day 2 7. Accounts Receivable: Amounts owed to a business by customers for goods/services on credit. 8. Accounts Payable: Amounts owed by a business to suppliers/creditors for purchases on credit. 9. Gro
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Mastering Unit Economics Unit economics isnโt just a metricโitโs your startupโs financial DNA. It reveals whether each customer adds value or drains cash. Hereโs how to build your unit economics from scratch: 1. Define Your Economic Unit What drives
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