Revenue, costs and profit — Economics, 11–13 years
A business makes a profit only when the money from sales is greater than the cost of making and selling its products. Separating these ideas helps explain business decisions.
What profit means
Revenue is the money a business receives from selling things. Costs are what it must pay for materials, workers, transport, rent and other needs. Profit is what remains after all these costs are taken away from revenue; it is not simply all the money that enters the till.
Why count both sides?
A business can be busy and still lose money if its costs are too high. Owners need to know whether sales cover the resources used, because profit helps pay for future improvements and rewards the risk of starting the business. If costs stay above revenue, the business cannot continue forever.
A school-cake stall
A class sells 40 slices at €2 each, so its revenue is €80. Ingredients cost €25 and the stall costs €15, giving total costs of €40. Profit is €80 − €40 = €40. If the class had sold only 15 slices, revenue would be €30, so it would make a €10 loss instead.
Sales are not profit
It is easy to call every sale a success because money arrives immediately. But a €50 sale may have required €45 of ingredients, wages and delivery, leaving only €5 profit. Forgetting even one cost makes a business look healthier than it really is, especially when costs are spread across many products.
Why a café changes its menu
A café can compare the revenue and costs of each item it sells. A popular sandwich may bring in money but use expensive ingredients, while a cheaper soup may leave more profit. The café can use this information to change portions, prices or the menu, without pretending that one number tells the whole story.
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