IB Business Management SLTopic 3 — Costs and RevenuesPaper 1 & 2Core skill~11 min read
Revenue and Revenue Streams
Revenue is the easiest calculation in the course: price times quantity. The interesting part is everything around it — why raising the price can shrink revenue, and why the smartest businesses make money from four or five places at once.
📚 What you need to know
Sales revenue = price × quantity sold, measured over a period of time.
With several products, work out each one separately and then add them together.
A revenue stream is any source of income: sales, subscriptions, advertising, sponsorship, merchandise, donations, interest, dividends, rent, licensing.
Several streams spread risk — if one dries up, the business survives.
Revenue is not profit. Profit is revenue minus costs.
Revenue is not cash. A sale on credit is revenue today and cash in 60 days.
Raising price does not always raise revenue, because quantity usually falls.
The formula, drawn
Revenue is a rectangle. Price is how tall it is, quantity is how wide, and revenue is the area inside. Once you picture it that way, price and volume decisions stop being abstract.
Every pricing decision is a bet that the rectangle gains more height than it loses width.
Learn this exactly
sales revenue = price per unit × quantity sold
With more than one product, do each line separately and add. A supermarket has thousands of products, which is why computer systems track revenue rather than a person with a calculator.
Revenue streams
Selling the main product is only one way to earn. A revenue stream is any source of income flowing into the business, and most large organisations have several.
Streams also smooth the seasons. A seaside cafe that adds a winter delivery service has evened out its year.
Stream
What it is
Who relies on it
Sales of goods and services
The core business: price times quantity
Almost every firm
Subscription fees
A regular payment for ongoing access
Streaming services, gyms, software firms
Advertising
Selling space or attention to other businesses
Social media, newspapers, free apps
Sponsorship
Firms paying to be associated with a brand
Sports clubs, events, festivals
Merchandise
Extra products sold alongside the main one
Clubs, bands, film studios
Donations
Money given rather than paid for a product
Charities and not-for-profits
Interest and dividends
Returns on cash held or shares owned
Firms with large cash balances; holding companies
Rent and licensing
Charging others to use property or a brand
Property owners, franchisors
Why this matters for evaluation: a business with one stream is exposed. If a single supermarket contract is 70% of revenue, losing it is fatal. Suggesting a second stream is a strong, cheap recommendation in almost any case study.
Keep three words apart in your head. Revenue is what came in from trading. Profit is what is left after costs. Cash is what is actually in the bank today. A firm can have record revenue, a small profit and no cash all at the same time.
Worked examples
WORKED EXAMPLE 1
Revenue from two products [3 marks]
Last month a coffee shop sold 4,200 coffees at $3.40 each and 1,150 sandwiches at $5.60 each. Calculate its total sales revenue.
Step 1: revenue from coffee4,200 × $3.40 = $14,280Step 2: revenue from sandwiches1,150 × $5.60 = $6,440Step 3: add them$14,280 + $6,440 = $20,720Total revenue $20,720show every line separately — each product line usually carries its own mark
WORKED EXAMPLE 2
Will a price rise raise revenue? [6 marks]
A market stall sells 250 units a week at $8. The owner plans to raise the price to $9 and expects sales to fall to 210 units. Calculate the effect on weekly revenue and comment.
Step 1: revenue now250 × $8 = $2,000Step 2: revenue after the rise210 × $9 = $1,890Step 3: the change$1,890 − $2,000 = −$110 a weekRevenue falls by $110Step 4: comment
The rectangle gained height but lost more width: customers here are price sensitive.
worth adding: profit might still improve, because selling 40 fewer units also saves variable costs — revenue and profit do not always move together
WORKED EXAMPLE 3
Reading a revenue mix [6 marks]
A football club earned $50m last season: broadcasting $20m, tickets $12m, sponsorship $10m, merchandise $8m. Calculate each stream as a percentage of revenue and comment on the risk.
Step 1: each as a share of $50mBroadcasting: 20 ÷ 50 = 40%Tickets: 12 ÷ 50 = 24%Sponsorship: 10 ÷ 50 = 20%Merchandise: 8 ÷ 50 = 16%Step 2: spot the exposure
Four streams looks healthy, but the largest single one is 40%.
Relegation would hit 40% of revenue at onceand notice the knock-on: falling out of the league would also cut ticket sales and sponsor interest, so the real exposure is bigger than 40%
💡 Exam tip
Never write “revenue = profit”. Examiners notice immediately.
For multi-product questions, set out one line per product, then a total line.
When a price change is involved, calculate revenue before and after and state the difference.
Comment on the mix, not just the total. Which stream is largest, and what happens if it goes?
Suggesting a new revenue stream is a strong recommendation — but say which one and why it fits this business.
Watch for revenue earned but not yet received. That is a cash flow point, and it earns credit.
⚠ Common mix-up
Revenue confused with profit. Revenue is the top line; profit is what survives the costs.
Revenue confused with cash. A credit sale is revenue now and cash later.
Assuming a higher price means higher revenue. It depends entirely on how much quantity falls.
Forgetting to add all the products. Read the question twice; there is usually a second line.
Calling a bank loan revenue. Borrowed money is not earned, and it has to be repaid.
Treating “many streams” as automatically better. Each new stream costs time, money and focus to run.
That is Costs and Revenues done. Up next: Final Accounts — where costs and revenue are put side by side to show what the business actually made.
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