If you're reading this you're probably running a a business, and for business owners, understanding the financial jargon is crucial. Whether you're a seasoned entrepreneur or just starting out, these terms will help you gauge the health and profitability of your online business.
Revenue, often referred to as sales or turnover, is the total amount of money taken in by a business during a set period of time from its primary operations, before any expenses are subtracted. Example: Imagine your online store sells 100 shirts at $20 each. Your revenue would be 100 x $20 = $2,000.
Cost of Sales, or cost of goods sold (COGS), represents the direct costs associated with producing the goods that have been sold.
Example: If the cost to produce each shirt is $10, and the advertising spend to sell each shirt is $5, and you sold 100 shirts, your cost of sales would be 100 x ($10+$5) = $1,500.
Gross Profit, is what you get when you subtract the cost of sales from revenue. It shows how much a company earns after direct costs.
Example: From the $2,000 revenue, if you subtract the $1,500 cost of sales, you'd have a gross profit of $1,500.
Gross Margin, is the gross profit expressed as a percentage of revenue. It's a great indicator of production efficiency.
Example: With a gross profit of $500 from a revenue of $2,000, your gross margin would be 25%.
Overheads, refer to the indirect costs of running a business, which aren't directly tied to a specific product or service.
Example: Think of expenses like monthly website hosting, salaries of administrative staff, and perhaps office rent if you have a physical location.
Breakeven Point, is the magic moment when total revenue equals total costs. Beyond this point, your business starts turning a profit.
Example: If your total costs, including overheads, come to $1,900, you'd break even after selling 95 shirts (assuming overheads are $400 as in the previous example)
Net Profit before Tax - This is the profit left after all expenses (including overheads) are subtracted from revenue, but before the taxman takes his share.
Example: With a revenue of $2,000, subtracting the $1,500 cost of sales and $400 in overheads, you'd be left with a net profit before tax of $100.
Net Cash vs. Net Profit - What's the difference? Net cash refers to the actual cash inflows and outflows of a business. Net profit, however, is an accounting measure and might include non-cash items like depreciation. It's possible for a company to be profitable on paper (positive net profit) but still face cash flow challenges.
Example: Your business might show a net profit of $100, but if customers are slow to pay their invoices, your actual cash on hand (net cash) could be lower.
If you're reading this you're probably running a a business, and for business owners, understanding the financial jargon is crucial. Whether you're a seasoned entrepreneur or just starting out, these terms will help you gauge the health and profitability of your online business.
Revenue, often referred to as sales or turnover, is the total amount of money taken in by a business during a set period of time from its primary operations, before any expenses are subtracted. Example: Imagine your online store sells 100 shirts at $20 each. Your revenue would be 100 x $20 = $2,000.
Cost of Sales, or cost of goods sold (COGS), represents the direct costs associated with producing the goods that have been sold.
Example: If the cost to produce each shirt is $10, and the advertising spend to sell each shirt is $5, and you sold 100 shirts, your cost of sales would be 100 x ($10+$5) = $1,500.
Gross Profit, is what you get when you subtract the cost of sales from revenue. It shows how much a company earns after direct costs.
Example: From the $2,000 revenue, if you subtract the $1,500 cost of sales, you'd have a gross profit of $1,500.
Gross Margin, is the gross profit expressed as a percentage of revenue. It's a great indicator of production efficiency.
Example: With a gross profit of $500 from a revenue of $2,000, your gross margin would be 25%.
Overheads, refer to the indirect costs of running a business, which aren't directly tied to a specific product or service.
Example: Think of expenses like monthly website hosting, salaries of administrative staff, and perhaps office rent if you have a physical location.
Breakeven Point, is the magic moment when total revenue equals total costs. Beyond this point, your business starts turning a profit.
Example: If your total costs, including overheads, come to $1,900, you'd break even after selling 95 shirts (assuming overheads are $400 as in the previous example)
Net Profit before Tax - This is the profit left after all expenses (including overheads) are subtracted from revenue, but before the taxman takes his share.
Example: With a revenue of $2,000, subtracting the $1,500 cost of sales and $400 in overheads, you'd be left with a net profit before tax of $100.
Net Cash vs. Net Profit - What's the difference? Net cash refers to the actual cash inflows and outflows of a business. Net profit, however, is an accounting measure and might include non-cash items like depreciation. It's possible for a company to be profitable on paper (positive net profit) but still face cash flow challenges.
Example: Your business might show a net profit of $100, but if customers are slow to pay their invoices, your actual cash on hand (net cash) could be lower.
If you're reading this you're probably running a a business, and for business owners, understanding the financial jargon is crucial. Whether you're a seasoned entrepreneur or just starting out, these terms will help you gauge the health and profitability of your online business.
Revenue, often referred to as sales or turnover, is the total amount of money taken in by a business during a set period of time from its primary operations, before any expenses are subtracted. Example: Imagine your online store sells 100 shirts at $20 each. Your revenue would be 100 x $20 = $2,000.
Cost of Sales, or cost of goods sold (COGS), represents the direct costs associated with producing the goods that have been sold.
Example: If the cost to produce each shirt is $10, and the advertising spend to sell each shirt is $5, and you sold 100 shirts, your cost of sales would be 100 x ($10+$5) = $1,500.
Gross Profit, is what you get when you subtract the cost of sales from revenue. It shows how much a company earns after direct costs.
Example: From the $2,000 revenue, if you subtract the $1,500 cost of sales, you'd have a gross profit of $1,500.
Gross Margin, is the gross profit expressed as a percentage of revenue. It's a great indicator of production efficiency.
Example: With a gross profit of $500 from a revenue of $2,000, your gross margin would be 25%.
Overheads, refer to the indirect costs of running a business, which aren't directly tied to a specific product or service.
Example: Think of expenses like monthly website hosting, salaries of administrative staff, and perhaps office rent if you have a physical location.
Breakeven Point, is the magic moment when total revenue equals total costs. Beyond this point, your business starts turning a profit.
Example: If your total costs, including overheads, come to $1,900, you'd break even after selling 95 shirts (assuming overheads are $400 as in the previous example)
Net Profit before Tax - This is the profit left after all expenses (including overheads) are subtracted from revenue, but before the taxman takes his share.
Example: With a revenue of $2,000, subtracting the $1,500 cost of sales and $400 in overheads, you'd be left with a net profit before tax of $100.
Net Cash vs. Net Profit - What's the difference? Net cash refers to the actual cash inflows and outflows of a business. Net profit, however, is an accounting measure and might include non-cash items like depreciation. It's possible for a company to be profitable on paper (positive net profit) but still face cash flow challenges.
Example: Your business might show a net profit of $100, but if customers are slow to pay their invoices, your actual cash on hand (net cash) could be lower.
