Chapter 13 How to improve profit Flashcards
Chapter 13
How might cutting costs improve profit?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
Cutting costs is one way of increasing profit.
Costs that can be cut include material costs, wages, marketing and investment.
A firm should be careful that cutting costs does not lead to reducing quality (of the product or service).
If you keep the selling price the same, and yet reduce costs, you will automatically make more profit on every product you sell.
Chapter 13
How might increasing revenues improve profit?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
Increasing revenues is a way of increasing profit.
Revenue = Number of products sold x Average price.
Revenue can be raised in several ways including increasing the selling price (depending on the price sensitivity of the product), improving the marketing or making a better product.
Chapter 13
What is the impact of price changes on profit?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
In some cases, reducing the price could also lead to an increase in revenue whereas in others, increasing the price might increase revenue.
A firm should be careful not to raise the selling price so much that it discourages customers from purchasing.
Chapter 13
What is meant by Costs?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
How much a business has to spend in order to deliver its product or service on things such as materials, labour, investment in research and marketing
Chapter 13
What is meant by a Loss?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
Occurs when the revenues of a business are less than its costs over a period of time. A loss can be reduced by increasing revenues (through marketing or product development) or reducing costs.
Profit / (Loss) = Revenue – Costs
A loss is shown by putting brackets around the calculation e.g. (30,000) would mean the firm made a £30,000 loss
Chapter 13
What is meant by a Profit?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
Occurs when the revenues of a business are greater than its costs over a period of time. Profit can be increased by increasing revenues or reducing costs.
Profit / (Loss) = Revenue – Costs
A PROFIT is shown by not putting brackets around the calculation e.g. 30,000 would mean the firm made a £30,000 profit.
Chapter 13
What is meant by Revenues?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
The amount of money received from selling goods or services over a period of time
Total Revenue = Average price x Number of products sold
Or the formula: TR = P x Q
Chapter 13
What are the problems a business might face if it makes a large loss?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
- Might be more difficult to finance new products
- May need to raise finances (e.g. loans)
- Suppliers may be worried and not give credit
- Banks will view them as high risk
- May be at risk of a takeover
- May have to reduce their workforce and lose valuable skills
Chapter 13
What methods could a business might use to increase its profit?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
Reduce its costs
Increase sales
Find ways to add value to its products or services
Chapter 13
What impact will reducing costs have on a business?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
it may lower their overheads
it may increase their profit margins
it might give them the opportunity to reduce selling prices
Chapter 13
What impact will closing a store and using online selling instead have on a business?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
it may reduce direct customer contact
it may reduce the level of sales
it could lower profits
Chapter 13
How is profit calculated?
Edexcel 2BS01 Business Studies GCSE Unit 3.3
Profit / Loss = Total revenue – Total costs
