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THE NET INCOME
BUDGET
Net Income is what is
left after all expenses
have been paid. Often
referred to as bottom
line income
COST STRUCTURE
A cost structure is the
distribution of expenses
that make up your
business
COST FALLS UNDER TWO BIG
CATEGORIES NAMELY
Fixed costs Variable costs
CONTRIBUTION
MARGIN
Contribution margin is
simply the price of your
product or service less
your variable costs
YOUR CONTRIBUTION MARGIN IS THE
MUSCLE THAT NEEDS TO BEAR THE
WEIGHT OF YOUR FIXED COSTS
Badly Run Business Well Run Business
BREAK-EVEN
POINT
The break-even point is
the point where total cost
equals total revenue
THE BREAK-EVEN POINT TELLS YOU
HOW MANY UNITS YOU NEED TO SELL
BEFORE YOU BECOME PROFITABLE
Break-even point is defined as where:
Total Revenue = Total Cost
TOTAL COST
To be profitable total
revenue must exceed
total cost. Total cost is
composite of all fixed and
variable cost
THE FORMULA FOR TOTAL COST IS
SHOWN BELOW
Total cost = Fixed Cost + Variable Cost
Total fixed cost = Fixed Product Overhead + Fixed Selling and
administrative expenses
Total variable cost = Variable Product Overhead + Variable
Selling and administrative expenses
NET INCOME
Net income is total
revenue minus total cost
LOOK AT THE BOTTOM LINE, YOU
COULD BE LOSING MONEY WITHOUT
KNOWING IT
Net income is computed as: Total Revenue – Total Cost
Net Income per unit is computed as
Revenue per unit – Cost per unit
Illustration
SEE AN EXAMPLE BELOW
You can also download the
workbook here
SUMMARY
Previously, we discussed the
revenue equation and how
to effectively predict our cost of
doing business
www.mybusinesskpi.com
Email: evelyn@mybusinessskpicoach.com
Phone: (417) 812-5945
Finally, we now know
how to use this
information to predict
net income
www.mybusinesskpi.com/NetIncomeBudget.html

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The net income budget