What does “business” mean? The dictionary definition is: “The conducting of a business activity for the benefit of the business, production, profits, and market”. A business is further defined as the structured efforts and activities of people to make and sell goods and/or services to meet their own needs and desires for profit, and the collective efforts of people to support the needs and desires of others who are similarly situated.”
Now here are some key terms to help you with further understanding: Sales – the sale of products to be sold. Firm – a single firm or company; also used to refer to the entire workforce of that firm. Producers – those who create or produce the goods to be sold. Marketing – the process of conveying information about the goods that have been produced, including promotions, advertisements, and public relations. Marketing is usually performed by firms that employ marketing professionals such as salesmen, public relations personnel, and financial officers.
Distribution – this refers to the distributing or gathering of raw materials to be used in making goods available to buyers. Marketing – the process of promoting new goods or services in order to increase sales. Resale value – the total value of goods that have been bought by consumers. Profit – the income realized from the sale of goods. Another important function of a business organization is the research and development function.
The firm must recognize its stakeholders, which include customers, employees, suppliers, government and other economic and social organizations. It should also set prices based on the present value of the inputs produced by the firm. Prices set by firms should be fair to all stakeholders, except those that are not directly involved in the production or distribution of the firm’s goods and services. Pricing practices should be reasonable, taking into account factors such as competition, time needed to complete projects, level of service, reliability, environmental considerations, and expected returns.
A firm should be able to specify, identify, and eventually satisfy its market needs. Its market research should involve considering both direct and indirect costs involved in producing and distributing the goods or services. By identifying market needs, it helps in designing and offering products or services that solve problems, provide relief, or enhance performance. By identifying market needs, a firm can better serve customers more efficiently by improving quality, timing, cost, safety, output, and profitability.
A firm that processes the data coming from customer surveys and from market research in a way that profits are realized increases its revenues and profit margin. However, all profits and revenues are not created equal. Each type of profit comes with different margins depending on the different sources of revenue. A firm that derives a large part of its revenue from fees for credit cards and debit accounts will enjoy higher margins than a firm that earns a large part of its revenue from selling tangible assets like land and plant and machinery. Taking all these factors into account, one can say that a firm’s profit margin is the excess of its total revenue minus its total costs, less any depreciation for the present value of the assets.