Improving profits and profitability

• What are the three main ways to improve profits and profitability?

  • Increase the selling price
  • Reducing cost of sales
  • Increase sales volume
• Why would increasing the price possibly improve profits?

  This will increase the profit margin as, particuarly if the good is price inelastic, for example, a neccessity.
• Why would reducing cost of sales possibly not improve profits?

  Demand may fall if the quality of the good is lower, the location is less attractive and staff are less motivated or provide worse customer service because of lower pay. Efficiency may also fall increasing unit costs
• How can a business increase their sales volume to improve profits and profitavility?

  • Increased promotion, sales promotion or new product development
  • Expanding into new geographical markets or new market segments
• How can investment in non-current assets improve profits and profitability?

  New equipment, premises and vehicles can expand the scale of operation and improve efficiency of production and output. Can also increase quality to charge higher prices with better technology.
• How can new product development improve profits and profitability?

  Adding new unique products to the portfolio may attract more customers, may add to the brand image, create new USP's to differentiate and may allow higher prices to be charged
• How can the HR function try to possibly increase profits and profitability?

  Better trained staff and greater motivation can increase the efficiency of employees. Better quality and customer service can contribute to higher profits
• Removing production of unprofitable products or services is a way to improve the firm's profitability because there is less waste of resources and a decrease in cost of sales
• How can a business decrease their raw materials which decreases varaiable cost per unit?

  It may do this by finding a cheaper supplier which will lead to an increased contribution per unit
• What are the difficulties of improving profits?

  • Costs of implementing the methods
  • Impact on brand image
  • Reaction of customers
  • Keeping up with rival firms