Profit Flashcards
profit formula
Profit = revenue - all costs
Gross profit formula
Gross profit = direct costs - sales revenue
what happens when you increase and cut prices?
- increase price, sales fall, contribution per unit rises, profit rise is uncertain
- cut prices, sales rise, contribution per unit falls
Gross profit margin formula
gross profit
—————– X 100
sales revenue
operating profit margins formula
operating profit
——————– X 100
sales revenue
net profit margin formula
profit for the year
———————– X 100
sales revune
ways to improve profits
- increase revenue
2. decrease costs
how to increase revenue
consider marketing mix:
- make changes to products = more appealing to customer
- better distribution= make it more available
- changes to promotion = more aware of benefits of the product
- add value = USP, differentiate
What could a business do to produce the product more effectively? But what are the drawbacks of this?
- better technology
- paying less for the inputs being used
HOWEVER - when reducing costs the quality shouldn’t depreciate or the service
- might lead to fall in sales and revenue
How is profitability measured?
Profitability is mainly measured using the operating profit margin
What are the 2 ways of improving profitability?
- Increase the price
- boost the profit per scale, but sales may fall
- impact of any price increase will depend on the price elasticity of demand
- the more price elastic demand is the greater the fall in demand wil be - Cut costs
- has to be done without damaging the quality
- better bargaining to get the supply prices down or better ways of producing may lead to higher profits per scale
What is revenue?
Value of scales made over a specified period
- comes from just customers
What is cash inflow?
Comes from many sources
