Costs & Revenue
It costs money to make things (costs/expenses); you earn money by selling them (revenue); if revenue is more than costs, that's profit; if costs are more, that's a loss
What a learner can do afterwards
- Explain what costs, revenue, and profit mean using a simple example
- Calculate profit from a given scenario (e.g. spent £3 on ingredients, sold cakes for £8, profit = £5)
- Explain what happens if costs are higher than revenue (you make a loss)
1 · Read
When you make things to sell, you spend money first to get ready. That spending is called a cost. Maybe you buy lemons, sugar, or paper cups. When someone buys what you made, the money you get back is called revenue.
Sam runs a lemonade stand. He spends £2 on lemons and sugar. That is his cost. He sells cups of lemonade all afternoon and takes in £7. That is his revenue. Profit is revenue minus cost: £7 minus £2 is £5. Sam gets to keep £5.
Sometimes cost is bigger than revenue. If Sam had spent £7 on lemons and sugar but only sold £2 worth of lemonade, he would lose £5 instead of earning it. That is called a loss.
Revenue minus cost equals profit; when cost is bigger instead, that is a loss.
More to read
How to Calculate Profit
Profit is the money a business gets to keep. Here is how to work it out.
1. Add up all the money that came in. This is your revenue. It is every pound people paid you for the things you sold.
2. Add up all the money that went out. These are your costs. Count everything you spent, like ingredients, paper, or supplies.
3. Take the costs away from the revenue. The number left over is your profit.
Say you sold lemonade and earned £10. You spent £4 on lemons and sugar. Work out 10 take away 4. Your profit is £6.
If the costs are bigger than the revenue, do not worry. That just means you made a loss. A loss tells you to spend less or charge a little more next time.
Sell Sweets and Make a Profit
Want to turn pocket money into more money? Try selling sweets.
1. Decide how much money you can spend. This is your starting cost. Say you have £5.
2. Buy sweets cheaply. You might buy fifty sweets for 10p each.
3. Sell each sweet for a little more than you paid, like 20p. The extra money on each sweet is your gain.
4. Sell all fifty sweets at 20p and you earn £10. Remember, you spent £5 to buy them.
5. Take the cost away from the money you earned. 10 take away 5 is 5. You made £5 profit!
What Is Profit and What Is Loss?
A business makes money when it sells things. But selling is not the whole story.
Revenue is all the money that comes in from selling. Costs are all the money spent to make and sell the product.
Compare the two to see how the business did.
If revenue is more than costs, the business made a profit. Profit is money left over after everything is paid for.
If costs are more than revenue, the business made a loss. A loss means it spent more than it earned.
If they are exactly equal, the business broke even. It did not win or lose money.
Having cash in the drawer is not the same as making a profit. You must count the costs too. Always compare what came in with what went out.
Revenue, Cost, and Profit
Every business, big or small, wants to earn a profit. Here is what the words mean.
Revenue is the income a business gets from selling its products. You find it by multiplying the price of one item by how many you sold.
Cost is the money spent to make those products.
Profit is total revenue take away total cost.
Try it with a cupcake stand. You sell 10 cupcakes for £2 each. Your revenue is 10 times 2, which is £20. Your ingredients cost £12. Your profit is 20 take away 12, which is £8.
When revenue is bigger than cost, the business earns a profit. When cost is bigger than revenue, the business has a loss.
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Where it sits
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Where this leads
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