DESIGN IN ACTION

Entrepreneurial Venture Design

Sharing lived experiences and learnings from building real world solutions.

Key Premise

Company profit and loss statement directly connects to its business operations. The business operations can be understood well once you understand costs well and understand how those costs help in generating revenues to pay for the costs.

Revenue - Costs = Profits

YOU CANNOT UNDERSTAND REVENUE WITHOUT UNDERSTANDING COSTS.

Understand Costs

One needs to understand the nature of costs because revenue generation requires costs to be taken up upfront. On a time line, costs always comes first. On P&L representation, revenue is written down first but costs should be looked at carefully.

Fixed costs are the costs that are required to be incurred irrespective revenue. These are cost that you have to pay on your obligations even at zero productive activity of your business.

Variable costs are the costs that are directly linked to each unit of good or service sold to generate revenue. Variable costs help in understanding unit economics of the business.

Semi Variable Costs Or Semi-fixed costs are the costs that may have some component as variable and some component as fixed. We will discuss these below.