unit 3 Flashcards
How to calculate profit
Revenue - Costs
Definition of revenue and how to calculate it
- the total income received from the sale of a good or service
- total revenue - price x quantity sold
Pros/cons of many revenue streams
PRO
- Allow the business to generate extra revenue and profit
- Don’t have to rely on one source of revenue as much
CON
- May distract the business from its core focus
Definition and examples of revenue streams
The income that a business gets from different business activities
- selling goods and services
- advertisements on website
- merchandise (merch)
- sponsorships (eg. football teams)
Fixed cost definition and example
- doesn’t matter how much is produced - the costs stays the same no matter the level of production/sales
- eg. rent, property tax, interest on a bank loan
Variable costs definition and examples
- costs that increase as the output increases (as more goods are produced)
- eg. raw materials, packaging
How to calculate total variable cost
Total variable cost = Quantity x variable cost per item
Formula for profit
Profit = Revenue - Fixed Costs - Total Variable Costs
Definition of Cashflow Forecast
A statement that shows the expected cash a business expects to receive and pay out over a period of time
Cashflow Forecast Structure
A. Opening balance
B. Cash inflows
C. Cash outflows
D. Net cash flow (B-C)
E. Closing balance (A+D)
Examples of cash inflows/outflows
inflows
- sales revenue
- owners capital
- sale of fixed assets
outflows
- rent
- wages
- purchase of inputs and materials
What is the difference between profit and cashflow?
In situations where trade credit is given (for example 30 days)
Revenue - added to chart immediately
Cashflow - added to chart after 30 days (when the money actually flows through)
Causes of Cash Flow problems (5)
- Unprofitable business (business making a loss)
- Giving too much trade credit to consumers
- Expanding too quickly (have to pay to expand - profits come slower)
- Having too much stock (pay suppliers - wait for cash to come in from sales)
- Seasonal demand problems (eg. ski - higher sales during winter)
Strategies for dealing with cash flow problems
Improving cash inflows
- Improve credit terms (eg. trade credit from 60-30 days)
- Any sources of finance (bank loan, share capital etc.)
- Sell assets
- Short term promotion (eg. discounts)
Reducing cash outflows
- Find cheaper suppliers
- Delay payment to creditors (eg. longer trade credit)
- Reduce stock
- Cut unnecessary overheads
What is working capital?
Funds available for the day-to-day running of the business
Definition of Liquidity
How quickly an asset can be turned into cash
Working Capital Cycle components
A. Cash in
B. Payment to suppliers/employees/cash (cash out)
C. Goods produced
D. Goods sold
rate of B-D = shows successfulness
What is the relationship between investment, profit and cashflow
investment - large sum of money needed
profit - investment should lead to higher future profit
cash - large outflow to start with, followed by small cash inflows
Definition of business investment
committing money or resources to a idea with the expectation of generating profits or returns in the future.
How can business investments lead to cash flow problems in the short run
large outflow at first - large sum of money payed for investment
What is market planning?
- identifying the marketing goals of a business and what strategies they will use to achieve those goals
- how are we going to get consumers to buy our product?
What is in a marketing plan?
might include
- marketing objectives (eg. increase market share)
- marketing strategies (target new customer)
- target market
- market research competitors
- marketing budget
3 roles of marketing planning
- set objectives
- target market
-increase market share - marketing strategies
- market research
- implement strategies - reflection and evaluation
- did the strategies meet the objectives?
definition of mass marketing
when’s business aims to sell a product to all consumers in the market
- an undifferentiated strategy (does not target anyone in particular)
definition on niche marketing
when a business focuses on a specific and well-defined segment or part of the market
- a differentiated strategy (aimed at certain consumers)
PROS of mass marketing
- more potential customers - higher sales
- higher brand recognition
- lower costs as higher production leads to economies of scale
PROS niche marketing
- product is designed for its consumers so brand loyalty
- less competition so can charge higher prices for specialised products
- can specialise and focus on target customers
generally - would a new company work in the mass market or niche market - why?
niche
- less competition
what is product differentiation?
- ways in which a business’ products are different to the competition
what is a USP, examples?
UNIQUE SELLING POINT/PROPOSITION
- any aspect of a business that makes it appear different to the competition in the mind of the consumers
eg.
- best/cheapest
- well known slogans/adverte
- first/original
- shopping experience
- home delivery
pros / cons of product differentiation (having a usp)
PROS
- brand image
- increased brand loyalty
- can charge higher prices
- more resistant to changes in the market
CONS
- marketing costs
- can be copied by competitors
- might limit the potential audiemce
What is a market segment
- a part of a market where consumers share characteristics which are the same
eg. clothing market - male youth
- sportswear
what is market segmentation?
- breaking a market into different parts, where consumers in each segment have similar characteristics
3 different types of market segmentation
- demographic segmentation
2 geographic segmentation - psychographic segmentation
What is target marketing?
targeting your product towards a certain market segment
examples of demographic segmentation
- age
- gender
- race
- religion
- marital status
- education
- income
- language
examples of geographic segmentation
- local tastes
- local culture
- climate
- urban/rural
- population density
examples of psychographic segmentation
- lifestyle
- hobbies and interests
- values
- motivation
what is a customer profile?
a system that identifies customers in each segments
- able to tailor their marketing toward them through profiles and information on each persin
What is a PPM?
Product positioning matrix
- product perception map
- 2 x 2 visual tool that shows customer perceptions of a product or brand compared to competitors
x and y axis - two key characteristics important to customers
Why do businesses create PPMs?
- gain information on the market
- find gaps in the market (less competition - more successful)
- repositioning
- create a product portfolio - range of product that target different segments
what is revenue expenditure
The cost of the day-to-day running of a business
what is phsycographic segmentation?
a market research method used to divide a market or customer group based on their beliefs, values, lifestyle, social status etc.
definition of direct costs
- costs that can be clearly identified with production of each unit of production or a project
- eg. cost of meat in hamburgers, cost of business teachers in business education
what are indirect costs/overheads
- costs that cannot be clearly identified with each unit of production
- costs that don’t contribute to production but keep the company going
- eg. costs of cleaning a school or business (but cannot be attributed to a single class) ceo salary
CONS of mass marketing
- limited personalisation
- competition
due to the many competitors - it could lead to a great competition at some points - waste of resources: Resources may be wasted on reaching individuals outside the target market.
CONS mass marketing
- Limited Personalization: Mass marketing may lack personalization, leading to a less targeted message.
- Competition: Intense competition can arise in saturated markets.
- Waste of Resources: Resources may be wasted on reaching individuals outside the target market.
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Since mass marketing aims to reach a broad audience, there is a risk of investing resources in advertising or promotional activities that do not effectively resonate with or attract the intended consumers
CONS niche marketing
- Limited Market Size: The size of the niche market may be smaller, limiting potential revenue.
- Risk of Dependence: Dependence on a narrow market can pose risks if it becomes less profitable or experiences changes.
- Higher Costs: Operating in a niche may involve higher production costs per unit due to lower economies of scale.
