Presentation on theme: "The Building Block of Business The Economics of One Unit of Sale"— Presentation transcript:
1The Building Block of Business The Economics of One Unit of Sale
2Economics of One Unit of Sale Entrepreneurs use profits:To pay themselvesTo expand their businessesTo start other businessesRetail: one unit or item (i.e., one watch)Manufacturing: one order (any quality)Service: one hour of service time or a standard block of time devoted to a task (i.e., one hour of lawn-mowing service)Wholesale: a dozen of an item (i.e., 12 watches)
3Cost of Goods Sold for One Unit Selling Price per Unit Revenue- COGS per Unit -COGSGross Profit per Unit Gross ProfitTotal Revenue – Total Cost of Goods Sold = Total Gross Profit
4Selling Multiple Units Average sale per customer - Average cost of sale per customer Average gross profit per customer
5Your Business and the Economics of One Unit “Later, you will learn about the principles of competitive advantage, unique selling proposition, and marketing and advertising.”-How to start and operate a small business
6The Four Types of Business Manufacturing: makes a tangible product (you can literally touch it). A sneakers manufacturer makes sneakers but does not necessarily sell them to individual consumers.Wholesale: wholesalers buy the sneakers in large quantities from the manufacturer and then sell smaller quantities (typically in dozens) to shoe stores.Retail: retail shoe stores sell the sneakers one pair at a time to consumers.Service: a service business sells intangible products (you can’t actually touch them). A personal trainer, for example, sells his or her expertise to help people exercise.
7The Cost of Labor in the EOU Manufacturing Business: unit = 1 cardSelling Price per Unit: $4.50Materials: $1.00Labors:Cost of Goods Sold per Unit: $2.50Gross Profit per Unit:
8Hiring Others to Make the Unit of Sale When Janet was creating the cards herself, she was getting paid to do so. But, now that she has friends helping her and pays them a $6 rate, Janet’s income is based on the gross profit.
9Janet's Total Gross Profit Going for VolumeManufacturing Business: unit = 1 cardSelling Price per Unit:$4.50Materials:$1.00Labor:1.50Cost of Goods Sold per Unit:$2.502.50Gross Profit per Unit:$2.00Janet's Total Gross ProfitRevenue ($ 3.50 X 2,000 Cards ):$7,000.00Materials ($1 X 2,000):$2,000.00Labor ($1.50 X 2,000):3,000.00Cost of Goods Sold:$5,000.005,000.00Gross Profit:
10Lessons to Be LearnedFive breakthrough steps entrepreneurs can take are:Calculating the unit of sale.Determining the economics of one unit of sale.Substituting someone else’s labor.Trying to sell in volume.Creating jobs and operating at a profit.
11Becoming a Business Leader When becoming a leader, the entrepreneur has to promote him or herself.
12Vocabulary Cost of goods sold Economics of one unit of sale [EOU] The cost of selling “one additional unit” for a product-based business.Economics of one unit of sale [EOU]The figuring of markup and profit around a business’s unit of sale.Gross profitTotal sales revenue minus total cost of goods sold.Unit of saleThe amount of product (or time, in a service business) from which a business figures its operations and profit; considered the “building block” of a business.