I work for a multinational financial institution, and earlier this year it posted a series of videos on its intranet describing how the company makes money. While I don't know that I learned any new facts from the video series, it was very interesting to see the company present a simple – and frank – communication showing at a high level why it operates the way it does.

This sort of awareness is very important, I believe, for both employers and their employees. Employers benefit by ensuring that their employees understand the reasons behind some of their policies, procedures and other guidelines. Employees benefit by understanding where their paycheck comes from as well as understanding how to please their employers by doing things that increase revenue while avoiding things that decrease revenue.

Unfortunately, not all employers see the benefits of explaining how they make money to their employees. Perhaps they assume the employee already knows, or perhaps they figure it's more trouble than it's worth. Likewise, not all employees care to know, especially if they are in temporary or wage-based position.

How does your company make money?

If you don't know how your company makes money, then you should ask your employer and/or manager to take a few minutes and explain it to you. It probably won't be any great mystery, and you might be surprised at the simplicity of the scheme. If for some reason your employer or manager is not able or willing to share with you how the company makes money, or if it seems overly complex, you might want to look for another job.

Ultimately, there are really only a few ways that a company can make money.

• Product sales – Sales are the primary source of revenue for many businesses. Products can include raw materials, finished products, real estate, or any other tangible asset or commodity. Simply put, to stay in business a company must sell things for more than they cost to make or obtain. I would include licenses, for things like software and trademarks, in this category.
• Service fees – Some companies specialize in providing specific services, and others develop services to complement the products they produce or sell. Fees for services can range from simple flat fees to timed-based fees to service contracts that describe numerous fees for various levels of service. Fees typically are established to cover the costs of providing a particular service as well as provide a reasonable amount of revenue; however, sometimes fees are punitive as well, assessed by companies to try to prevent customers from doing things that are costly or undesired (such as checking account overdraft fees).
• Interest income – Companies often put operating cash into a safe, liquid account that earns interest, such as a money market account or some type of cash-equivalent like treasury bills. Other companies, such as financial institutions or even retailers that do in-house financing, earn interest on money lent out in the form of loans or lines of credit.
• Investment income – Companies can sometimes increase their earnings by investing, just like individuals do. While an "investment" can be a loose term, typical investments could include the purchasing of companies (in whole or part), commodities not used in production, or even debt securities such as other companies' bonds. Capital expenditures could also be considered investments.

Again, it's not rocket science, but it's nice to know that making money is theoretically very easy.

Working for a financial institution, my company relies primarily on service fees and interest and investment income. Depending on how you define a "product" versus a "service," it may generate some product sales as well.

What about you? How do your bills get paid?