If You Can’t Define It You Probably Aren’t Even Tracking It…
I’m amazed every day when I first start speaking with potential clients and begin to ask them basic questions about their business that they can’t usually answer this simple question, “What was your revenue last year?” They will often answer me back with questions. They will ask if I mean total revenue or revenue or to, “please define revenue” or asked, “what is revenue?” or other questions. I’ll simply say, ” your revenue definition.” Then I usually get even more puzzled looks. So, let’s begin with a few basics so you can start keeping track of one of the most important key performance indicators in your business.
Key Financial Concepts
Revenue definition is the total revenue or income your business generated. Think of it as your total receipts. I find business owners sometimes get confused with the terms total revenue and marginal revenue so let me explain those so they are clear. To define total revenue to my clients I always tell them to think of the number of sales they have had of a certain quantity of their products or services. The total income of your business is your total revenue and comes from calculating the quantity of products or services you sold by the price of those goods and multiplying them together. This equals your total revenue.
I define marginal revenue for my clients as the added revenue they will have if they can increase their sales by selling just one more product or one more service.
Profit Margins and More
As a small business owner you must watch your profits, of course. Understanding basic economics will help you and being able to read and understand financial income and balance statements is a necessity. It is imperative that you are able to make decisions to increase your profitability and build your successful business. Your business mentor should be able to help you do this as well as your accountant. You will need a chart of accounts and bookkeeping records for your business right from the start if you are serious about growing your business.
Every small business must have good financial and accounting processes and procedures and monitor their key performance indicators to assure profitability. Certainly your chief goal is to maximize your total revenue, keep down your total expenses so you take home a good profit. With the added lessons I gave you today you can have less confusion and greater clarity for more financial stability.
Comment below so I can answer your profitability questions!