1. Estimating revenues, costs
and profits
AS Business Studies
Mr Pat

2. Lesson Objectives
 Know
how a business forecast sales volumes
and selling prices to estimate revenue
 Understand the difference between fixed and
variable costs and be able to identify examples
of each.
 Understand the difference between price and
cost and the concept of profit.
 Understand the impact of a profit or loss on a
business.

3. The new businesses
 Meet
Monsieur
LePlonk. He has
decided to set up a
new business. He will
be opening a shop in
Sheffield selling
French food and wine
to the local people.
 Meet
Shelly Isfit. She
has decided to set up
a new personal
trainer service to help
people lose weight in
the new year and take
advantage of people’s
new years
resolutions.
Both new businesses need to estimate revenues and will need your help.

4. Before we start
 Is
Monsieur LePlonk offering goods or a
service.
 Give an example of his good or service
being offered.
 Is Shelly offering goods or a service.
 Give an example of her good or service
being offered.

5. What is revenue
 Key
Term: Revenue is simply another name for
the money that a business gets from selling their
goods or services
 Revenue is also known as sales revenue,
turnover, sales turnover or just sales
 Key Term: Sales Volume is the number of
products or services sold by a company over a
period of time.
 For example the revenue for January for a sweet
shop would be the amount of money they had
received from selling sweets in their shop.

6. How do we work out Sales Revenue
 The
formula to calculate sales revenue is
Revenue = Price per item sold x quantity of items sold
Or
R=PXQ


So what would be the weekly revenue for a sweet shop that sold
300 bags of sweets at 50p per bag
Answer: £150 – Revenue = 0.5 or 50p X 300

7. Estimating your revenue
 When
a business starts they will need to
estimate or “guestimate” their revenue for
a given period, normally a year.
 In pairs discuss for 2 minutes the following
 How
would a business estimate their revenue
e.g. what might they have done previously to
help them with an educated guess.
 What could be the potential problems to a
business of estimating revenue.

8. How to estimate revenues
A
business would use previous experience
to estimate revenues
 A business may look at its competition to
help estimate revenue
 A business would estimate how many item
they expect to sell per week and the
average price per item and can use this to
estimate.

9. What happens if you get it wrong
A
danger of estimating may be that you
estimate too high or too low.
 This may mean that you borrow too much
money from banks which will still need to
be repaid.
 It may mean you order too much or too
little stock.

10. Monsieur Le Plonk – estimating revenue
 In
your books estimate the daily, weekly
and annual (yealy) revenue for Monsiuer
LePlonk.
 He expects to sell 35 items per day at an
average price of £8
Oh La La, thank you for
all your help!

11. Shelly Isfit – estimating revenue
 In
your books estimate the daily, weekly
and annual revenue for Shelly.
 She expects to train 5 people per day for
an hour each. Her hourly rate for
customers will be £30.
Come on people, time to
work off those mince pies
and turkey dinner!

12. Answers – estimating revenue
 Check
your answers:
 Monsieur LePlonk:
 Days
revenue = £8 x 35 items = £280
 Weekly revenue = £280 x 5 = £1400
 Annual revenue = £70,000
 Shelly
 Days
Isfit:
revenue = £30 x 5 = £150
 Weekly revenue = £150 x 5 = £750
 Annual revenue = £37,500

13. Your thoughts……………
In pairs can you
think of 2 ways that
a company could
increase it’s
revenue?

14. Increasing revenue
 To



increase revenue you could
increase the price of each item
Or
Increase the number of items sold.
 What
will happen to the daily revenue of
Monsieur LePlonk if he increases his average
price per item to £10
 What will happen to the revenue of Shelly Isfit if
she trains 6 people per day rather than 5.

15. Do you think that
increasing the price
will always earn
more revenue?
If not why
not …..

16. Increasing revenue
 Increasing
the price of an item does not
always increase revenue. This is because
by increasing the price you might end up
selling less items.
 By the same means, lowering the price
might mean you do NOT end up losing
money as it may mean you sell more
items.

17. What are costs?
 Costs
are outgoings associated with a business/
 There are two main types of costs involved with
running a business. These are
 Key term - Fixed costs: costs which do not
change when the output of a business
increases. (e.g. when more products made)
 Key term - Variable costs: costs which change
directly with the output of a business (e.g.
increase when you make more products and
decrease when you make less products)

18. Task

The following are a list of costs. Put them into the following table to
show which are fixed and which are variable costs in your book.
Fixed costs
Rent
Electricity bill
Petrol
Loan repayment
Gas bill
Water bill
Variable costs
Wages of permanent workers
Insurance
Wages of casual workers
Advertising
Stock

19. Task 2
 Identify
3-5 fixed costs and 3-5 variable
costs for each of Monsier LePlonk’s and
Shelly Isfit’s business.
 Write the answers in table in your books

20. Calculating total costs
 Key
Term: Total costs are all of the costs
for a business.
 Total
costs = fixed costs + variable costs

21. Monsieur Le Plonk costs
 These
are weekly costs for Monsieur LePlonk’s
shop.
 Calculate his total costs for a week.
Fixed costs
Rent (£400)
Wages for Mr
LePlonk(£250)
Loan repayment (£100)
Variable costs
Electricity (£50)
Petrol for deliveries
(£50)

22. Shelly Isfit costs
 These
are weekly costs for Shelly Isfit’s shop.
 Calculate her total costs for a week.
Fixed costs
Variable costs
Loan repayment used to Petrol to get to clients
buy training
house or gym (£70)
equipment(£150)
Wages for Shelly (£300)
Advertising (£50)

23. What is the difference between price and
cost?
 Often
people think that price and cost are the
same thing. In business studies they are not and
it is important to understand the difference.
 Key term: Price – This is the amount of money
you charge a customer to buy your product or
service.
 Key term: Cost – this is the amount of money a
business needs to pay out e.g. for stock, wages,
bills etc.

24. So what is profit and loss?
 We
have seen that Monsieur LePlonk
earns £1400 a year in revenue. From this
he will need to pay out his costs such as
wages and bills. He will also need to pay
tax to the government.
 If there is any money left over this is called
profit, if his tax and costs are more than
the money he has made then this is called
a loss

25. Profit/ loss
 Key
Term: Profit is when the revenues of a
business are greater than its costs.
 Key Term: Loss is when the revenues of a
business are less than its costs
 How to calculate profit/ loss
 Profit/Loss
= Total Revenue – Total Costs

26. Task…..
 Using
the figures from before calculate the
weekly and annual profit/ loss for both Monsieur
LePlonk and Shelly Isfit.
 Which business makes the highest profit?
 Remember
these are just estimates so the
actual figures may be different.

27. A year on……………….
 After
a year of trading Monsieur LePlonk
has performed better than expected and
earned nearly double the profit expected.
 What would be the impact on Monsieur
LePlonk’s business of making a profit?

28. A year on……………….
 After
a year of trading Shelly Isfit has had a
tough year and made a loss. Unfortunately she
found there has been more competition than
expected and the recession has meant people
are saving their money.
 What would be the impact on Shelly Isfit’s
business of making a loss?

29. Have the Lesson Objectives been met?
 Know
how a business forecast sales volumes
and selling prices to estimate revenue
 Understand the difference between fixed and
variable costs and be able to identify examples
of each.
 Understand the difference between price and
cost and the concept of profit.
 Understand the impact of a profit or loss on a
business.