Revenue Basics

Revenue is simply the money a business gets from selling its products or services - think of it as the cash flowing in before any expenses. The formula couldn't be more straightforward: selling price per unit × quantity sold.

Let's say Miranda's burger business sells 400 packs at £3 each - that's £1,200 in revenue. When she raises the price to £3.50, her revenue jumps to £1,400, which is a 16% increase.

Quick tip: Revenue always rises in direct proportion to quantity sold - double the sales, double the revenue!

To calculate percentage changes, use: (difference ÷ original) × 100. This formula will pop up everywhere in business studies, so get comfortable with it now.

Understanding Business Costs

Costs are all the money a business spends to create and sell its products. Without understanding costs, you can't figure out if you're actually making money - even with high revenue!

There are two main types you need to know. Fixed costs stay the same regardless of how much you produce - like rent (£500 per month whether you make 10 or 1,000 products), insurance, and salaries.

Variable costs change with your output levels. Raw materials, hourly wages, and packaging all increase when you produce more. The key formula here is: total cost = fixed costs + variable costs.

Remember: A business could have massive revenue but still lose money if costs are too high!

Cost Calculations in Action

Working out your total variable cost is straightforward: variable cost per unit × output. Then add your fixed costs to get the complete picture.

Let's break down Miranda's March costs. Her fixed costs (rent, insurance, salary) total £1,105. Her variable costs are £2.27 per burger pack, so for 400 packs that's £908. Total costs: £2,013.

Average unit cost tells you what each product actually costs to make: total cost ÷ output. This number is gold dust for pricing decisions.

Pro tip: Keep track of both fixed and variable costs separately - it makes business planning much easier!

Calculating Profit and Loss

Profit is your reward for taking business risks - it's what's left after paying all your bills. The magic formula: profit = sales revenue - total costs.

Understanding the three possible outcomes is crucial. If revenue exceeds costs, you've got profit. When they're equal, you break even. When costs are higher than revenue, you're making a loss (shown in brackets like this: (£25,000)).

Take Gnome Bargains: they spend £12,500 making 5,000 gnomes (£2.50 each). Selling them at £7 each generates £35,000 revenue, leaving £22,500 profit.

Key insight: High revenue doesn't guarantee profit - controlling costs is just as important as boosting sales!

The beauty of these calculations is their simplicity, yet they drive every major business decision you'll encounter.