Revenue, costs and structure | Introduction to Business

Revenue, costs and profit

Revenue is the money a business earns from sales. Costs come in two main kinds:

Fixed costs: Stay about the same no matter how much you sell: rent, insurance and software subscriptions.
Variable costs: Rise and fall with sales: ingredients, packaging, shipping and payment processing fees.

Gross profit is revenue minus the direct cost of what you sold, often called the cost of goods sold. Net profit is what remains after all other expenses too. Profit margin shows profit as a percentage of revenue:

Profit margin=Profit ÷ Revenue × 100

Business structures

Structure	How it works	Things to know
Sole proprietorship	One person owns and runs the business.	Simple and inexpensive to start. The owner is personally responsible for business debts.
Partnership	Two or more people share ownership.	A written partnership agreement is essential. In a general partnership, partners share responsibility for debts.
Corporation	A separate legal entity owned by shareholders.	Usually limits owners' personal liability, but costs more to set up and needs more record-keeping.
Co-operative	Owned and controlled by its members, who share the benefits.	Common for grocery stores, housing, farming and credit unions.

Rules, fees and taxes differ by country, province and state, so check your government's business registration website before you choose.

The jobs every business has to do

Marketing: understanding customers and getting their attention.
Sales: turning interest into purchases.
Operations: producing and delivering the product or service.
Finance: tracking money, setting prices and planning ahead.
People: hiring, training and supporting staff.
Customer service: helping customers before and after they buy.

In a one-person business, the owner does all of these. In a large company, each one may be a whole department.

The Business Model Canvas

The Business Model Canvas is a one-page tool for describing how a business works. It has nine building blocks:

Building block	Question it answers
Customer segments	Who are we serving?
Value proposition	What problem do we solve, and why should customers choose us?
Channels	How do customers find us and buy from us?
Customer relationships	How do we keep customers coming back?
Revenue streams	How do we earn money?
Key resources	What do we need to deliver our offer?
Key activities	What must we do well every day?
Key partners	Who helps us, such as suppliers?
Cost structure	What are our biggest costs?