Sales revenue and costs

Revenues Revenues. Sometimes called sales revenue, or just sales, or sometimes turnover. All mean the same. From the chart how much revenue do you think Apple received for the iPhone? How might we forecast revenues for the iPhone?iPhone

Revenue calculation and definition Revenue is the value of total sales made by a business over a period of time typically a month, a quarter (3 months) or a year Measured in a currency, so £ in the UK Revenue depends on The number of units sold The selling price Calculated as price times quantity (p x q) Revenue is sometimes called sales, sales revenue, total revenue or turnover

Examples to calculate 50,000 apples at £0.50 each 1,200 books at £12 each 200 handbags at £1,500 each 40 Ferraris at £125,000 each Try these: 20,000 apples at £0.50 each, and 5,000 mangos at £2.00 each In September, 50 meals a day at £20 per meal

Apple revenue by product Revenues in millions of dollars Units in 000

Raising revenues Must be from either Raising the price, or increasing the number sold Or raising one by more than the other falls, eg reducing the price to encourage customers to buy more Raising the price Will customers still buy the product or service? Depends on the type of product – are customers sensitive to price (is there a lot of competition), or is it unique Increasing the number sold By reducing the price. For price sensitive products where there is competition this can lead to a greater increase in demand

Costs definition and introduction Costs are expenses a business incurs when producing and selling its goods or services A business needs to know: What it costs to produce the good or service How much it will cost to market the product How high the overheads of the business are What the potential costs of a business decision are Why are costs important? Are the things which drain away the profits of the business Can be the main causes of cash flow problems for a new or small business They change as the output or activity of a business changes

Fixed and variable costs Fixed costs Fixed costs are any costs which do not change according to the level of output Variable costs Variable costs are those costs which vary according to the level of output Raw materials Rent Interest charges Salaries Packaging Wages Sales commission Delivery costs Electricity Insurance

Diagram of costs

Example to calculate SeptemberOctober Rent£500 Salaries£2,000 Advertising£150 Other fixed costs£350 Variable costs per job£50 Number of jobs80100 Total cost£7,000£8,000 Profit£1,000£2,000 Richard Repairs – your local garage repair service If each the price of each repair job was £100, what were profits? How many jobs did Richard need to do to break even?

Importance of high/low fixed costs In the long run fixed costs can vary Opening a new store means more rents etc Increasing production capacity means more equipment to be bought What might the following businesses want to do: 1.Maximise sales volume or 2.Have a high price A business with high fixed costs Should try to sell as much as possible to make sure fixed costs are spread over many units Theme park A business with high variable costs Should make sure the selling price covers the variable cost Example restaurants (must pay for the ingredients)