Profitability and unprofitability

Profitable and unprofitable products

A supermarket manager talks about the costs and prices for some of its products.

Product	Cost per unit (euros)	Sale price per unit (euros)	Result
A	10	12	We make a profit: the product is profitable or profit-making
B	15	15	We break even: we reach break-even point.
C	8	7	We make a loss. The product is loss-making, but we use Product C as a loss leader to attract people to the store, as we know they will then also buy profitable products.
D	12	22	Product D is very profitable and we sell a lot of it. It’s one of our money-spinners or cash cows, products that have very good profitability

Words

make a profit

something gives you a profit, it makes a profit

profitable /ˈprɒfətəbəl $ ˈprɑː-/ ★★☆ adj. OPP unprofitable

producing a profit or a useful result

The advertising campaign proved very profitable.

profit-making adj. OPP non-profit-making

[usually before noun] a profit-making organization or business makes a profit

Government will never be a profit-making enterprise.

break-even /ˌbreɪkˈiːvən◂/ n.

[uncountable] the level of business activity at which a company is making neither a profit nor a loss

The firm should reach break-even point after one year.

break-even point n.

the level of sales at which the income from goods sold is just enough to cover the costs of production so that neither a profit nor a loss is being made

The service’s break-even point is around 3,500 subscribers.

money-spinners n.

[countable] BrE a moneymaker

We’re hoping the show will be a real money-spinnner.

cash cow n.

[countable] something that a company sells very successfully and that brings in a lot of money

The $8 billion video rental industry is the biggest cash cow ever developed in entertainment.

Budgets and expenditure

Like all companies, Nordsee and Vaclav have th budget for, or plan, their costs, and have a budget. Look at the graphs comparing their planned budgets with their actual expenditure(what they actually spent).

• Nordsee went over budget and overspent by 200,000 euros.
• Vaclav underspend by 50,000 euros. He was under budget.
• On advertising, Vaclav’s spend was only 200,000 euros, while Nordsee’s advertising spend was 700,000.

Note : Spend is usually verb, but it can also be a noun, as in advertising spend.

Words

budget for

The budget for photography has been cut.

actual /ˈæktʃuəl/ ★★★ S1 W2 adj.

[only before noun] used to emphasize that something is real or exact.

I’m not joking. Those were his actual words.

expenditure /ɪkˈspendɪtʃə $ -ər/ ★☆☆ n.

[countable, uncountable] the total amount of money that a government, organization, or person spends during a particular period of time

expenditure on research and development

over budget

when expenditure is more than budget, you can say it is over budget

under budget

when expenditure is less than budget, you can say it is under budget

spend /spend/ ★★★ S1 W1 vi, vt.

to use your money to pay for goods or services

I can’t afford to spend any more money this week.

overspend /ˌəʊvəˈspend $ ˌoʊvər-/ vi, vt.

to spend more money than you can afford

The hospital has overspent its budget by £70,000.

underspend /ˌʌndəˈspend-ər-/ vi, vt.

to spend less than you intended or than you are allowed to

If the budget is underspent, then the amount will be lost or next year’s budget will be reduced to the lower amount.

Economies of scale and the learning curve

Ford is one of the biggest car companies in the world. It benefits from economies of scale. For example, the costs of developing a new car are enormous, but the company can spread them over a large number of cars produced and sold. In dealing with suppliers, it can obtain lower prices, because it buys in such large quantities.

The company also benefits from the experience curve or learning curve: as it produces more, it learns how to do things more and more quickly and efficiently. This brings down the cost of each thing produced, and the more they produce, the cheaper it gets.

Words

economies of scale

the financial advertages of producing something in very large quantities

Each has been trying to outbid the rest in an attempt to gain market share and so exploit economies of scale.

enormous /ɪˈnɔːməs $ -ɔːr-/ ★★★ S2 W3 adj. SYN huge

very big in size or in amount

an enormous bunch of flowers

experience curve n.

the pattern of falling costs as production of a particular product or service increases, because the company learns more about it, workers become more skilful etc

learning curve n.

[countable] the rate at which you learn a new skill

Everyone in the centre has been through a very steep learning curve.

steep /stiːp/ ★★☆ S3 adj. OPP low

a road, hill etc that is steep slopes at a high angle

The road became rocky and steep.

proportion /prəˈpɔːʃən $ -ˈpɔːr-/ ★★☆ W2 n.

[countalbe usually singular] a part of a number or an amount, considered in relation to the whole

The proportion of women graduates has increased in recent years.

It is the end of this time. : )