A business generates revenue by satisfying demand from customers. In other words, revenues flow from customer demand – but only if a business has a product that meets the customer needs and expectations.
The terms revenue and demand are related, but different:
Revenue is the amount (value) of a product that customers actually buy from a business
Demand is the amount of a product that customers are prepared to buy.
Demand can be measured in terms of volume (quantity bought) and/or value (£ value of sales)
Various factors will affect the level of demand:
The relationship between quantity demanded and price can be shown graphically by drawing a demand curve, as illustrated below:
There are various different names for the same thing – the value of what a business sells!
They all mean the same thing - revenue arises through the trading activities of a business.
The value of revenue achieved in a given period is a function of the quantity of product sold multiplied by the price that customers paid. So revenues can be calculated using the following important formula:
Total revenue = volume sold x average selling price
An example of this calculation is shown in the table below:
There are two main ways of increasing revenue:
Increase the quantity (amount) sold
Achieve a higher selling price
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