Financial Informants

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This Animal Called Revenues!

This Animal Called Revenues!

Just how do businesses make money? Of course it's by generating revenues :) Some people call this the "top line" (why they call revenues the top line is a topic for another day).

And how do businesses generate revenues? Now this will require a bit more explanation. The obvious answer is that businesses generate revenues by selling a product or service to their target customers. However, there is more to this simplified answer.

Why do some businesses generate more revenues than others? Why do some businesses die after operating for a short period of time?

Mathematically speaking, Revenues = Volume x Price. Where the volume is the number of customers you have multiplied by how much of your product or service they are buying; and Price is the amount of money your target customers are willing and able to pay for one unit of your product or service.

But the above equation is rather obvious; right? Wrong! The devil like they say lies in the details.

The reason why some businesses make more money than others is in the details of how they generate their revenues. The reason why other businesses die after a short period of operation is also in the details of how they generate their revenues. (We shall explore this more tomorrow)

For today, keep in mind that revenues can never get too much to kill a business!

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