Presented by: Alvalene G. Rogers, CTE C.E. Murray High School Ch 2, The Building Block of Business The Economics of One Unit of Sale

The Building Block of Business Key Objectives Define a unit of sale for a business Describe the four types of business. Analyze the economic of one unit (for each type of business) Calculate gross profit per unit.

The Building Block of Business Economics of One Unit of Sale What is gross profit?  (Price) minus (Cost of goods sold) Why do entrepreneurs use profits? Simply…  To pay themselves.  To expand their businesses.  To start other businesses. THEREFORE…  Every entrepreneur needs to know how much gross profit the business will earn on everything it sells. To do this, entrepreneurs study the economics of one unit of sale, or EOU.

The Building Block of Business EOU : calculating the markup and profit around a business’s unit of sale

The Building Block of Business Unit of Sale  Definition: One unit of the product or service a business sells.  Entrepreneurs usually define their unit of sale, depending on the type of business in the following ways:  Retail: One unit of item  Manufacturing: One order (any quantity)  Service: One hour of service time or a standard block of time devoted to a task  Wholesale: A dozen of one item  Combination: A combination of different items expressed as the average sale per customer.

The Building Block of Business Cost of Goods Sold (COGS) for One Unit The term, cost of goods sold (COGS), can be thought of as the cost of selling “one additional unit.”  For example, if you buy watches and then resell them, your cost of goods sold per unit is the price you paid for one watch. Once you know your cost of goods sold, you can calculate gross profit by subtracting the COGS from your revenue. Selling Price per Unit -COGS per Unit Gross Profit Per Unit Revenue -COGS Gross Profit

The Building Block of Business The Four Types of Business 1. Manufacturing: Makes a tangible product. This means you can literally touch the product, such as sneakers. 2. Wholesale: Wholesalers buy the sneakers in large quantities from the manufacturer and then sell smaller quantities to shoe stores. 3. Retail: Retail shoe stores sell the sneakers one pair at a time to consumers. 4. Service: A service business sells intangible products. For example, a personal trainer sells his or her expertise to help people exercise.

The Building Block of Business Take Notes… Five breakthrough steps entrepreneurs can take are: 1. Calculating the unit of sale. 2. Determining the economics of one unit of sale. 3. Substituting someone else’s labor. 4. Trying to sell in volume. 5. Creating jobs and operating at a profit.

The Building Block of Business Becoming a Business Leader  By taking those steps in the previous slide, the entrepreneur will be promoting him or herself to become a leader of a business.  In other words, they will be the chief executive officer.  When the entrepreneur figures out how to make something for a profit, she or he can hire others to do the labor.  At first, an entrepreneur can be part of his or her own economics of one unit. If you start manufacturing items in you own home, you will eventually make enough profit to hire other workers.  When you are able to have your own business, if you lower prices, you will be able to sell millions of units.