Do you understand the three terms and how they apply to the business of selling sunglasses? If not, you're in luck. We are going to explain what it all means in this post. As a leading wholesale distributor of designer sunglasses for men, women, and children, we are intimately familiar with revenue, profit, and margin.
1. The Money Our Customers Pay
This post will discuss the three teams as they relate to our business. Everything you read can apply to your businesses well. Whether it's wholesale sunglasses from Olympic Eyewear or the products you sell to retail customers, the three principles are consistent to both types of businesses. Let's start with revenue.
Revenue is the total amount of money our customers pay for wholesale sunglasses. Let's say you place an order totaling $1000. That entire amount is counted as revenue in our books. The key to understanding revenue is to realize that it is completely separate from expenses. It's also separate from profit.
Revenue is the starting point for determining whether or not a company is meeting its financial objectives. Without revenue, a business goes under. Both our company and yours require paying customers whose purchases equal revenue.
2. The Extra Money We Earn
Let's move on to profit. Have you ever heard of large corporations releasing their earnings reports? An earnings report details both revenue and profit. You already know that revenue is the amount that customers pay to purchase products. What is profit? It is the 'extra' money so to speak
Let's go back to that hypothetical $1000 order you placed for wholesale sunglasses. Maybe we spent a total of $750 to provide that shipment of bulk sunglasses. We spent $750 but charged you $1000. The extra $250 is our profit.
Note that these are arbitrary numbers. We've chosen nice, round numbers to make the math easy. Don't assume these numbers are standard.
3. The Value of the Profit
Finally, margin is a measurement of the value of the profit we make. It is measured as a percentage of total revenue that makes up profit. Let's go back to some simple numbers to explain this.
We sold you that order of bulk sunglasses for $1000. Our expenses totaled $750. What we spent makes up 75% of the total amount you paid. Our profit makes up 25% of the total. Therefore, our margin is 25%.
Margin is a more valuable measurement than many business owners know. Why? Because if the margin is too low, doing business isn't worthwhile. Let's say our margin on the $1000 order was just 1%. We still made a profit, but that profit would have been a mere $1. It would hardly be worth doing business for such a small amount.
As a business owner, margins should matter to you. But to understand margin, you have to have a good handle on revenue and profit. All three play a big role in your success as a retailer of designer sunglasses, just as they play an equally big role in our business as wholesalers. Selling sunglasses is a business. And we need revenue, profit, and a healthy margin to make it worth our while. So do you.
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