Module 1 of 11 12 min
How Businesses Make Money
Revenue, expenses, and the basic equation behind every company.
Course lessons
Step 1
The lesson
Every business, from a lemonade stand to a global company, runs on one equation: Profit = Revenue − Expenses.
Key term
Revenue
The money a business brings in from selling its products or services. For many businesses, revenue = price × quantity sold.
Key term
Expenses
What it costs to run the business: ingredients, wages, rent, marketing, equipment, and more.
Expenses come in two flavors. Variable costs rise with each sale — the cup and coffee in each latte. Fixed costs stay about the same no matter how much you sell — rent, insurance, a permit.
That split matters. Once sales cover the fixed costs, each additional sale adds mostly profit. But if sales fall, fixed costs don't — which is how businesses slide into losses.
Step 2
See it
Customers pay, which is revenue. The business subtracts the cost of making what it sold, then the costs of running the business, then interest and taxes. What's left is profit.
Customers pay
Revenue
Cost of what was sold
Ingredients, materials
Running costs
Wages, rent, marketing
Interest & taxes
Lenders and government
Profit
What the owners keep
Step 3
Real-world example
Maya's coffee cart
Maya runs a hypothetical coffee cart near a college campus. She sells about 120 drinks a day at $4 each, 250 days a year.
- Revenue: 120 × $4 × 250 = $120,000
- Ingredients and cups (variable): $42,000
- Wages, permit, upkeep, marketing: $60,000
- Interest and taxes: $4,000
Profit: $14,000. Out of every $4 drink, only about $0.47 is profit — the rest pays for everything it took to make and sell it.
Step 4
Try it: run the coffee cart
Raise the price, cut costs, or add expenses and see what happens to profit.
Your numbers
Direct costs of what was sold: ingredients, inventory, materials.
Running the business: wages, rent, marketing, software.
Results
Gross margin
65%
Operating margin
15%
Net margin
11.7%
$14,000 net profit
| Revenue | $120,000 |
|---|---|
| − Cost of goods sold | −$42,000 |
| Gross profit65% margin | $78,000 |
| − Operating expenses | −$60,000 |
| Operating income15% margin | $18,000 |
| − Interest and taxes | −$4,000 |
| Net profit11.7% margin | $14,000 |
Educational calculator, not financial advice. Results are hypothetical estimates based on the numbers you enter.
Step 5
Knowledge check
Answer each question, then check your answer to see the explanation. Retake it as many times as you like.
Question 1 of 3
Step 6
Summary
Profit = revenue − expenses. Revenue is what customers pay; expenses include variable costs that rise with each sale and fixed costs that don't. Big revenue doesn't guarantee profit — you always have to ask what it cost to earn it.
Step 7
What you should remember
- Profit = Revenue − Expenses.
- Revenue = price × quantity (for most simple businesses).
- Variable costs rise with sales; fixed costs don't.
- Revenue isn't profit.
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