when a business sells a product or a service to a customer
the money it receives in exchange is known as revenue and in this video i'm
going to explain to you the concept of revenue and how to calculate it.
Now it's important to be aware that revenue is different to profit, they are completely separate
financial concepts in business. For example, a business could sell 1 million pounds of products, so
they've generated 1 million pounds of revenue but they could still make a loss. This is because when
we calculate revenue in business we don't account for any of the costs. So you might be thinking how
do I calculate the revenue of a business? Well, all you need to know is how many products or services
the business has sold and how much it sold each one of those for then, you can use the formula
I'm about to show you. To calculate the total revenue for the business the formula that's used
is: quantity sold multiplied by the selling price. Let's have a look at a simple example together. So
we've got a scenario based on a business called Tom's Tops, Tom's Tops sells 30 t-shirts for £5
each during the month of May, based on this information what is the total revenue
for Tom's Tops in May? Well using the formula of quantity sold multiplied by the selling price
all you need to do is multiply the 30 t-shirts that have been sold by the selling price of £5
giving you an answer in this scenario of £150 meaning in the month of May Toms Top's had a total sales revenue of £150, this is a total amount of money that Tom's Tops received
from its customers before it takes away any cost of production and any other background costs.
So we've now seen a simple example let's step this up a notch, let's say that Tom has
now decided to expand his product range and he's now going to sell three separate types of t-shirt
in the future, in the month of June Tom predicts to sell 40 Tom's original t-shirts at £5 pound
each 25 Tom's edge t-shirts at £8 each and 18 Tom's cool t-shirts at £12 each
now this is a little bit more complex but based on this information what will the total sales
revenue be for Tom's Tops in the month of June? If you want you can pause your screen now and have
a go yourself or just wait a couple of seconds and you can follow me as I go through the example.
So yes we do have more information to deal with but the process for calculating total revenue
is just the same, using the formula quantity sold multiplied by selling price you should
have calculated the following: 40 Tom's original t-shirts by £5 equaling £200, 25 Tom's
edge t-shirts at £8 each equaling £200 and 18 toms cool t-shirts at £12 equaling
£216. All you need to do now is add them all together to calculate the total revenue for Tom's
Tops in the month of June. So that's £200 plus £200 plus £216 giving Tom's
Tops a total revenue of £616 in the month of June. I'm going to chuck just one more spanner
in the works to test you so Tom he's expanded his product range is really happy with how his
business is growing and he's now predicting that his total sales revenue will go up by 20%
in the month of July, so what will the total revenue be for Tom's Tops in the month of July
if sales do increase by 20% on top of June's £616? Again you can pause your screen
now and have a go at calculating the total revenue for Tom's Tops for the month of July
or just wait a couple of seconds and you can follow me as I work through the example.
So we now know that in June the total revenue was £616 and Tom was predicting a 20% increase on
this figure, all you need to do to be able to calculate a 20% increase on the £616 is
put £616 into your calculator and multiply this by 1.20, this will add 20% on top of £616.
So the predicted total sales revenue for Tom's Tops in July is £739.20.
So that's it a quick introduction to the concept of and how to calculate revenue in business.
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