What Makes Up Your Revenue
Can you identify where all the income for your business comes from? There are four main
components that every business receives income from.
2. Pricing Structure
One problem for many companies is that they set income goals, but then these are not met. It is far easier to find out where your money is coming from first. You can then work on improving each area separately.
Basically a revenue stream is defined as a source of income. Having multiple income sources will make your business more profitable. If one stream declines due to economic turndowns, another stream can be ramped up to replace that lost income.
Having multiple streams of income makes your business stronger, and this means that you can survive when other businesses will have to shut down. A great example of having multiple incomes streams is a mall owner. They rent out each individual store to different business owners. If one business fails, they are still receiving rental income from the other stores.
If you are not sure of where your revenue is coming from then create a detailed spreadsheet and start tracking your income. This will help you identify your most profitable area.
You may discover that most of your income comes from running promotional sales. Or you may find that your expenses are much higher than you anticipated. One way to increase your revenue is to raise your prices, or combine certain products together and offer a two for one type of special.
Keeping track of your costs is important if you ever want to turn a real profit with your
business. You definitely want to be getting your costs back, plus be making a profit at the
same time. If not, then you seriously need to look at your pricing structure in more
Another area that you should not overlook is your margins. Your margins determine how
successful and profitable your business is. The best way to measure this is by using your
gross margin. This is the sales price minus the direct material and labor costs that were
used to produce the product. Divide this total by the sales price.
You also need to take into account things like overhead expenses such as rent. The more
costs you factor into your calculations, the better your overall picture of where you
business stands will be shown.
By now you have a good understanding of how to identify where your revenue is coming from, and how to calculate your margins.