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Karunakar
1% Better • 9m
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, let’s dive into each concept through the lens of Sweet Success Cupcakes, a small bakery you’ve 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 Unit×Units Sold Sweet Success Example: You sell cupcakes for $3 each. In your first week, you sell 200 cupcakes. Revenue=3×200=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 =125dollars. 2. Variable Costs: These depend on production or sales volume. Each cupcake costs $1 in ingredients. If you sell 200 cupcakes: Variable Costs=1×200=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=Revenue−Total Costs Sweet Success Example: In your first week: Revenue: $600 Total Costs: $325 Profit=600−325=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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