The amount of a product that customers are prepared to and able to buy.
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Revenues
The amount (value) of a product that customers actually buy from a firm.
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Demand can be measured in terms of ...
Volume (quantity brought) and/or value (£ value of sales)
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Demand depends on ...
Price / Incomes / Tastes and fashions / Competitor actions / Social and demographic / Seasonal changes / Changing technology / Government decisions
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Demand curves
The relationship between quantity demanded and price can be shown graphically by drawing a demand curve.
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What is revenue?
Sales / Revenues / Income / Turnover / Takings
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Total revenue =
Volume sold x average selling price
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The two main ways for a business to increase revenues are :
Increase the quantity sold or achieve a higher selling price
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Costs
Costs are amounts that a business incurs in order to make goods and/or provide services.
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Costs are important because they ...
Are things that drain away profits / The difference between making good or bad profits / The main cause of cash flow problems / Change as the output or activity of a business changes
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Variable costs
Costs which change as the output varies - lower risk for start-up because no sales means no variable costs (raw materials / wages based on hours worked or amount produced / marketing costs based on sales / bought-in stocks)
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Fixed costs
Costs which do not change when output varies - increase the risk of a start-up (rent and rates / salaries / advertising / insurance, banking and legal fees / software / consultant and adviser costs/ design and development)
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Semi-fixed costs
Costs that are fixed in the short term, but then change once a certain level of output is reached (admin salaries - too much workload so more staff are needed / rent -run out of space so new buildings are needed)
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Total costs (TC) =
Fixed costs (FC) + Variable costs (VC)
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Problems with estimating costs
Some costs are easy to estimate and control (rent / salaries /advertising campaign) / others are much harder (raw materials - wastage / Returns or refunds - quality / No experience of the market)
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Profit
The reward or return for taking risks and making investments.
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Profit as an objective
For most businesses profit is key / It is the most important source of cash flow and finance for a business / Their can be reasons for running a business other than a 'profit motive'
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Why is profit important to a business?
A return on investment / A reward for taking risks / A key source of finance / A motivating factor and incentive / A measure of business success
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Profit =
Total sales - Total costs
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Two ways of measuring profit
In absolute terms - the £ value of profits earned / In relative terms - the profit earned as a proportion of sales achieved or investment made
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Other cards in this set
Card 2
Front
Revenues
Back
The amount (value) of a product that customers actually buy from a firm.
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