The Building Block of Business The Economics of

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The Building Block of Business
The Economics of One Unit of Sale
Economics of One Unit of Sale

Entrepreneurs use profits:
1)
2)
3)
To pay themselves
To expand their businesses
To start other businesses
Retail: one unit or item (i.e., one watch)
Manufacturing: one order (any quality)
Service: one hour of service time or a standard block of
time devoted to a task (i.e., one hour of lawn-mowing
service)
Wholesale: a dozen of an item (i.e., 12 watches)
Cost of Goods Sold for One Unit
Selling Price per Unit
- COGS per Unit
Revenue
-COGS
Gross Profit per Unit
Gross Profit
Total Revenue – Total Cost of Goods Sold = Total Gross
Profit
Selling Multiple Units
Average sale per customer
- Average cost of sale per customer
Average gross profit per customer
Your Business and the Economics of One
Unit

“Later, you will learn about the principles of competitive
advantage, unique selling proposition, and marketing and
advertising.”
-How to start and operate a small business
The Four Types of Business




Manufacturing: makes a tangible product (you can literally
touch it). A sneakers manufacturer makes sneakers but
does not necessarily sell them to individual consumers.
Wholesale: wholesalers buy the sneakers in large
quantities from the manufacturer and then sell smaller
quantities (typically in dozens) to shoe stores.
Retail: retail shoe stores sell the sneakers one pair at a
time to consumers.
Service: a service business sells intangible products (you
can’t actually touch them). A personal trainer, for example,
sells his or her expertise to help people exercise.
The Cost of Labor in the EOU
Manufacturing Business: unit = 1 card
Selling Price per Unit:
Materials:
Labors:
Cost of Goods Sold per Unit:
Gross Profit per Unit:
$4.50
$1.00
1.50
$2.50
Hiring Others to Make the Unit of Sale

When Janet was creating the cards herself, she was
getting paid to do so. But, now that she has friends
helping her and pays them a $6 rate, Janet’s income is
based on the gross profit.
Going for Volume
Manufacturing Business: unit = 1 card
Selling Price per Unit:
$4.50
Materials:
$1.00
Labor:
1.50
Cost of Goods Sold per Unit:
$2.50
Gross Profit per Unit:
2.50
$2.00
Janet's Total Gross Profit
Revenue ($ 3.50 X 2,000 Cards ):
Materials ($1 X 2,000):
Labor ($1.50 X 2,000):
Cost of Goods Sold:
Gross Profit:
$7,000.00
$2,000.00
3,000.00
$5,000.00
5,000.00
$2,000.00
Lessons to Be Learned
Five breakthrough steps entrepreneurs can take are:
1)
2)
3)
4)
5)
Calculating the unit of sale.
Determining the economics of one unit of sale.
Substituting someone else’s labor.
Trying to sell in volume.
Creating jobs and operating at a profit.
Becoming a Business Leader

When becoming a leader, the entrepreneur has to
promote him or herself.
Vocabulary

Cost of goods sold
The cost of selling “one additional unit” for a product-based
business.

Economics of one unit of sale [EOU]
The figuring of markup and profit around a business’s unit of sale.

Gross profit
Total sales revenue minus total cost of goods sold.

Unit of sale
The amount of product (or time, in a service business) from
which a business figures its operations and profit; considered
the “building block” of a business.
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