Making Profits

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Maximise profits; increase sales & control costs

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Making Profits

  1. 1. Making Profits in Business
  2. 2. What’s my line? <ul><li>Complete the following sentence: </li></ul><ul><li>In commercial businesses The Chief Executive’s 2 most important priorities are: </li></ul><ul><li>1 …………………………………………... </li></ul><ul><li>2 …………………………………………... </li></ul>
  3. 3. What’s my line? <ul><li>Answers </li></ul><ul><li>In commercial businesses The Chief Executive’s 2 most important priorities are: </li></ul><ul><li>1 To keep the business solvent / from going bankrupt </li></ul><ul><li>2 To make a profit </li></ul>
  4. 4. Understanding profits <ul><li>I run a business which sells Exercise books </li></ul><ul><li>I sell the books at 50p each. </li></ul><ul><li>Last month I sold 40,000 books (£20,000 sales). </li></ul><ul><li>I made £2,000 profit </li></ul><ul><li>I want to grow my business, so if I can increase sales to 50,000 books how much profit should I make? </li></ul>
  5. 5. Understanding profits <ul><li>I have two sets of costs </li></ul><ul><li>Fixed costs – like the rent for my warehouse and the lease on my van </li></ul><ul><li>Variable costs – like the cost of buying the books, and the money I spend on diesel for the van; the more I buy / use the more I spend </li></ul><ul><li>My revenue comes from my sales </li></ul><ul><li>My profit = My sales – My costs </li></ul>
  6. 6. Understanding profits <ul><li>It would be easy to think that if you increase sales by 25% then profits go up by the same amount </li></ul><ul><li>Actually something much more wonderful happens…. Take a look at the graph on the next page….. </li></ul>
  7. 7. Costs / Sales / Profits Relationship
  8. 8. Understanding Profits <ul><li>So if I increase sales by 25% </li></ul><ul><li>50p / book 40,000 sales = £2,000 profit </li></ul><ul><li>50p / book 50,000 sales = £4,875 profit </li></ul><ul><li>If I increase the price by 50% and can achieve sales </li></ul><ul><li>75p / book 40,000 sales = £12,000 profit </li></ul><ul><li>75p / book 50,000 sales = £17,375 profit </li></ul><ul><li>And if I also double the price and achieve sales! </li></ul><ul><li>£1.00 / book 40,000 sales = £22,000 profit </li></ul><ul><li>£1.00 / book 50,000 sales = £29,875 profit </li></ul>

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