Increasing profits in the business
Increasing the profit in a business should be the ambition of every business in every field of activity. The profit is known to be the difference between the income and all expenses (direct / variable and fixed) before income tax payments.
The increase in profit can be effected by a large number of different options and combinations between changes in income and expenses in each area individually, in combination, and in mixes of different percentages of change in income and profit.
In order to understand the process, one must understand the process of generating income and the variety of options available, as well as understanding the types of expenses and how they are incurred, and their contribution to the process of generating income.
You need to know the industry in which the business operates, the size of the market, customer types, market behavior, the characteristics of competition, the degree of sensitivity to price changes, the strength and response of competitors, the positioning of the specific business, substitution and other parameters. Each industry is run differently, and needs to be specifically distinguished.
At the same time, the business is required to identify its capabilities and weaknesses in relation to competitors and in relation to the opportunities and threats posed by the competitive environment in which the business operates, and the wider general environment. In the ability testing process one should identify identified weaknesses, as well as insufficient relative strengths, and strengthen the weaknesses and reinforce the relevant strengths.
As stated, every business must make the necessary and appropriate adjustments and actions for the specific business, and with regard to the products it provides, analyze and understand the target audience, the manner and characteristics of the purchase and price and service sensitivity, response times and other characteristics for the industry and target audience.
1. An increase in revenue can be made possible in the following ways
The increase in sales will be achieved by activity or a combination of activities as follows:
- Increase in the number of existing customers. By deepening and / or expanding an existing market, identifying additional markets, cooperating, acquiring complementary businesses, etc.
- Increase in the number of sales transactions on a timeline. With the help of purchase incentives according to the frequency of purchase.
- Increase in the number of existing products purchased in each sale transaction, with the help of purchase incentives according to quantity / volume of purchase.
- Increase in the mix of purchases due to the addition of new products on the timeline.
- The increase in sales without significant damage to the sales of existing products that allow this.
- Price reductions that will reduce the contribution rate, but will increase the total contribution due to the increase in purchase volume and frequency of purchase.
- Price reduction for purchase reduction, or discounts for quantity.
- Added value is perceived by the customer, which will allow an increase in sales and / or an increase in an existing price.
2. Fixed cost reduction:
The cost reduction includes the activity of checking the degree of necessity, cuts, and comparisons as follows:
- Examining all the fixed costs of the business, especially the weighty components such as: wages, financing, rent, insurance, professional services, transportation, vehicle expenses, maintenance, etc. And reduce them carefully and individually. According to the “cost-benefit” and “cost-benefit” models. I.e. a test of what the benefit is for the cost, and a reverse test, how much the cost is for the benefit. Sometimes different insights are gained, even though the numbers are the same, but the direction of the look is different.
3. Efficiency and managerial and operational efficiency depending on the type of business and occupation:
Efficiency is to do things the right way, according to the design, according to the standard, with the required quality and with the right timing as follows:
- Improving the quality of workmanship and productivity of employees (production, logistics, sales)
- Improving the coordination between the various functions for reducing faults and utilizing resources
- Use of appropriate technologies in the fields of: manufacturing, communications, logistics, information systems.
- Planning for efficient utilization of process times and delays.
- Adaptation of CA standards to those required for a business to function effectively.
- Output incentives in areas that allow this: production, sales, service, etc.
- Training for managers and employees, and improving teamwork and decision making.
- Improving time utilization of managers and key employees.
- Improving working environment conditions.
- Management: Planning, setting goals, using performance and control metrics on an ongoing and consistent basis.
Each activity performed correctly affects positively, there may be different combinations between all the moves mentioned.
It is important to note that the moves will be different in terms of the size of the business, its complexity, its organizational and functional business structure and more. The business will be required to adjust and synchronize between capabilities depending on the type and size of change to be made. Proper and timed discrepancies can cause damage, and dissolve the positive effect of activities performed. For example: an increase in sales without proper logistical organization will hurt supplies and reliability. Reducing employees indiscriminately may impair the ability to provide various services or perform essential activities. An increase in sales without proper control and management information systems will not allow the full realization of the business potential, and will impair the coordination between the functions and cause inefficiencies and malfunctions.
It is highly recommended to set strategic goals to achieve, in the areas relevant to the business, the goals should be quantified in quantitative and financial values or in% and timeline to achieve, as well as the activities required to perform in order to achieve them. The activities are in fact part of a strategic process, which sharpens the mission of the business, the vision, the overarching goal, the values in light of which it will operate in the process, and as stated the strategic goals