How Businesses Make Money — slides
Financial Literacy Club
Understanding Businesses · Lesson 1
How Businesses Make Money
Revenue, expenses, and the basic equation behind every company.
12-minute lesson · learnwithflc.org
How Businesses Make Money · 1 / 21
Financial Literacy Club
Understanding Businesses · Lesson 1
How Businesses Make Money
Revenue, expenses, and the basic equation behind every company.
12-minute lesson · learnwithflc.org
Today's goals
By the end of class, you'll be able to…
- Apply Profit = Revenue − Expenses
- Calculate revenue as price × quantity
- Distinguish fixed costs from variable costs
Warm-up
A coffee cart sells 200 coffees at $4 each. Did it make $800 in profit? What's missing?
Think, then write your answer.
The big idea
How Businesses Make Money
Revenue, expenses, and the basic equation behind every company.
Understanding Businesses · Lesson 1
Every business, from a lemonade stand to a global company, runs on one equation: Profit = Revenue − Expenses.
Vocabulary
Revenue
The money a business brings in from selling its products or services. For many businesses, revenue = price × quantity sold.
Vocabulary
Expenses
What it costs to run the business: ingredients, wages, rent, marketing, equipment, and more.
Understanding Businesses · Lesson 1
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.
Understanding Businesses · Lesson 1
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.
Understanding Businesses · Lesson 1
Revenue isn't profit
A company can bring in millions and still lose money. When you hear a big revenue number, the next question is always: how much did it cost to earn that?
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
Real 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.
Try it together
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.
Activity · pairs · 10 min
Run the Cart
- A coffee cart charges $4.50 a cup. Each cup costs $1.20 to make (variable cost). The cart lease and permit cost $600 a month (fixed cost).
- Pairs calculate revenue, total costs, and profit for a month of 300, 600, and 900 cups.
- Pairs explain why profit grows faster than sales.
Check for understanding · 1 of 3
A food truck sells 200 tacos a day at $3 each.
What's its daily revenue?
- A$203
- B$600
- C$200
- DIt can't be known without expenses
B. $600
Revenue = price × quantity = $3 × 200 = $600. Expenses affect profit, not revenue.
Check for understanding · 2 of 3
Which is a fixed cost for a coffee cart?
- ACoffee beans
- BPaper cups
- CThe monthly permit fee
- DMilk
C. The monthly permit fee
The permit costs the same whether Maya sells 50 drinks or 500. Beans, cups, and milk rise with each sale.
Check for understanding · 3 of 3
A company with $10 million in revenue must be profitable.
- True
- False
False
Revenue is only what comes in. If expenses are higher, the company loses money.
Remember
Key takeaways
- Profit = Revenue − Expenses.
- Revenue = price × quantity (for most simple businesses).
- Variable costs rise with sales; fixed costs don't.
- Revenue isn't profit.
Discuss
Talk it over
- Pick a business near you. What are its biggest fixed and variable costs?
- Why might a company choose to grow revenue quickly even while losing money?
Exit ticket
Why isn't revenue the same as profit?
Answer on your exit ticket before you leave.
Nice work today.
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