The solidity of a strategy to increase the profitability of your company
Posted: Sat Dec 21, 2024 4:36 am
Among other objectives that surely come quickly as a response, one of the most common is not to remain small forever. The story of large corporations that started from scratch, in a home or a garage, can be an inspiration.
The key? Profitability .
As a concept, profitability does not lose its relevance or importance, whether we are talking about small, medium or large companies, products or services. In fact, maximizing profitability is the key to ensuring the growth of the company and its overall profits.
Profitability is expressed as a germany email list ratio. It is the proportion between the costs associated with a product or service and the benefits or profits obtained from it. Each product or service has its ratio, and business profitability is thus understood as the aggregation of all these profits.
Seen in this light, and knowing that there is no secret formula for generating profits or increasing profitability for a particular company, there are a set of solid strategies that contribute to business growth.
Adequate and precise control of expenses
In accounting , numbers are never taken lightly, but they hardly define a situation or a story on their own. If we have to make decisions based on those numbers, decisions that involve a lot of money, we want to make sure they bring us success.
When it comes to determining what is more or less important in a company, sales figures are probably the worst indicator, although it is one that is often wrongly considered to be the main one.
Sales figures are like a crowded store: we automatically assume that a large figure, or a packed store, equals a business that is doing well.
It is not like that.
Sales do not include the amount paid to suppliers or other fixed direct costs.
A proper profitability analysis allows us to separate from the sales figures:
Variable direct costs ( payments to suppliers)
Fixed direct costs (labor costs)
These costs are the value, in benefits and profitability ratio, that our product or service loses along the way.
Knowing them allows you to:
Identify them in a way linked to sales
Act on them strongly and especially regarding products, reducing them as much as possible.
Comparative analysis
In order to grow, a company is interested in selling more of those products that leave more added value , on the one hand, and especially those with a higher contribution margin, because this is one of the keys to profitability.
Thanks to these calculations, unexpected situations can be discovered, such as having products that “work” well but leave little margin, and, surprisingly, how the best-selling (or most expensive) product is not enriching the company's coffers but those of the supplier.
In the end, when performing this analysis, many companies come to a similar conclusion: 20% of the products have the potential to generate 80% of the profits.
The increase in contribution margins
Having information at the level of absolute figures, but also at the level of ratio percentage or unit margin (the money that each product sold leaves net of costs), allows specific decisions to be made product by product that:
Increase sales of the most profitable products, services or lines
Increase the profitability of the best-selling products, services or lines
The goal is ultimately not to focus on general ideas but to see the whole picture of operations so that the business takes off and does so quickly.
The key? Profitability .
As a concept, profitability does not lose its relevance or importance, whether we are talking about small, medium or large companies, products or services. In fact, maximizing profitability is the key to ensuring the growth of the company and its overall profits.
Profitability is expressed as a germany email list ratio. It is the proportion between the costs associated with a product or service and the benefits or profits obtained from it. Each product or service has its ratio, and business profitability is thus understood as the aggregation of all these profits.
Seen in this light, and knowing that there is no secret formula for generating profits or increasing profitability for a particular company, there are a set of solid strategies that contribute to business growth.
Adequate and precise control of expenses
In accounting , numbers are never taken lightly, but they hardly define a situation or a story on their own. If we have to make decisions based on those numbers, decisions that involve a lot of money, we want to make sure they bring us success.
When it comes to determining what is more or less important in a company, sales figures are probably the worst indicator, although it is one that is often wrongly considered to be the main one.
Sales figures are like a crowded store: we automatically assume that a large figure, or a packed store, equals a business that is doing well.
It is not like that.
Sales do not include the amount paid to suppliers or other fixed direct costs.
A proper profitability analysis allows us to separate from the sales figures:
Variable direct costs ( payments to suppliers)
Fixed direct costs (labor costs)
These costs are the value, in benefits and profitability ratio, that our product or service loses along the way.
Knowing them allows you to:
Identify them in a way linked to sales
Act on them strongly and especially regarding products, reducing them as much as possible.
Comparative analysis
In order to grow, a company is interested in selling more of those products that leave more added value , on the one hand, and especially those with a higher contribution margin, because this is one of the keys to profitability.
Thanks to these calculations, unexpected situations can be discovered, such as having products that “work” well but leave little margin, and, surprisingly, how the best-selling (or most expensive) product is not enriching the company's coffers but those of the supplier.
In the end, when performing this analysis, many companies come to a similar conclusion: 20% of the products have the potential to generate 80% of the profits.
The increase in contribution margins
Having information at the level of absolute figures, but also at the level of ratio percentage or unit margin (the money that each product sold leaves net of costs), allows specific decisions to be made product by product that:
Increase sales of the most profitable products, services or lines
Increase the profitability of the best-selling products, services or lines
The goal is ultimately not to focus on general ideas but to see the whole picture of operations so that the business takes off and does so quickly.