How to Change Total Revenue Economics
There are some distinct tasks a company can carry out that can have a profound impact on revenue economics. First, a definition is in order. In economic terms, a company's revenue is determined by multiplying the price of its product or service, referred to as a unit, by the number actually sold. To be able to dissect and change economic revenue, it is important to understand the economic concepts of total costs, marginal revenue and marginal costs.
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Instructions
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1
Clearly understand the individual components that go into revenue economics, which are total costs, marginal costs and marginal revenue. In economic terms, marginal revenue represents the revenue a business generates when producing one additional unit of good or service. Marginal costs is the cost a business incurs for producing one additional unit of good or service. Total costs are calculated by multiplying the cost times all the units actually produced. The company's total economic profit is figured by subtracting total costs from total revenue.
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2
Identify the business factors or inputs that have a direct impact on these individual economic components. For example, advertising and marketing will typically stimulate demand, which will contribute to more units being sold and increase revenue. In addition, if the price is increased on these units, then the marginal revenue amount will increase contributing to a higher total revenue figure as well. On the other side of the economic revenue equation, the cost of production can be reduced using such things as increased automation, reducing head count and taking steps to become a more efficient, cost-effective operation. Reducing the marginal costs reduces the total costs, which will, in turn, increase profitability given the total revenue minus total cost equation.
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3
Decide on the business tasks to implement that will change your company's revenue economics after evaluating the business options available to you.
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4
Notice how the results of the overall revenue calculation has indeed changed as these business functions are implemented. Detail the actual results of each implemented business task and the impact it had on changing your economic revenue model.
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Repeat Step 2 through Step 4 using the appropriate business tasks to derive the results you are seeking anytime you want to change your company's economic revenue model.
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Tips & Warnings
Use an automated accounting system that can quickly and accurately track costs and revenues.
