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Saturday, June 13, 2009

Profit Improvement

Biggest Wish of Any Business
  • Businesses are small, medium or big. They are run by a single person as a proprietor or by small, medium or large groups of people in the forms of partnership, private limited or limited companies.
  • Irrespective of all these variations in the way businesses are run, there is one single biggest wish on the wish list of every business and that is making the biggest possible profits in a defined period of time (need not have to necessarily declare as profits formally to the world for several reasons like income tax etc but definitely, make huge surpluses in the company and keep them with the company in various forms).

What is Profit?

  • Overall money earned by selling goods and services in a given period of time minus overall costs incurred during that period by the company is the overall profit made by the company.
  • Objective: To continually improve this overall profit in a given period of time. More the merrier.

First Lesson to Improve Profit: Have the right Team of People in Place

  • Select the right people for your organization: your employees at all levels, your key management team, your suppliers of goods and services, the agencies whom you would outsource etc.
  • Select the people who have the right business acumen, who are customer and employee oriented, who know and believe that they and their organization are required to make profits to serve better as well as to grow better.
  • While selecting people, ask them point blank as to how they connect themselves with the ultimate customers and profits even though they may be placed in any function of the organization not directly connected with money matters and the customers.
  • In short, the people you position for your organization must have sound profit mindset.
  • After selecting them, put them in the right places in the organization, trust them and empower them.
  • Also train and develop them continually in their customer, employee and profit orientations.
  • Remember, if you make mistake in this and select the wrong kind of people, despite all the best management systems you may not be able to extract the best profits through them if you don't have the right people who can think and act upon.

Also refer: (Customer Orientation)

Another First Lesson to Improve Profits: Highest Value for Money to Your Customers

  • To make more profits there are three very obvious ways: 1. Sell more to a few customers, 2. Sell more to more customers, 3. Add more and more customers and sell more to a larger and lager number of existing and new customers.
  • This means that you will have attract a large and yet larger numbers of customers and motivate them to buy more and more of goods and services from you.
  • How do you do that? Answer is only one: Give your customers more value for their money as compared to what your competitors are giving and keep on improving this value for money to the customers. This is a continuous process. It's a journey that has no end.
  • Value for money to customer can be increased by improving the quality, service level, relationship with customer, price and lead time of your goods and services on a continual basis.
  • As the value for money given to customers improves, the number of customers and the quantity they purchase from you increases and you make more profits.

Also refer: (Customer Relationship management- CRM)

Yet Another First Lesson to Improve Profits: Reduce the Overall Costs of Goods and Services

  • Improving profits by selling more to more customers as described earlier is possible only if the goods and services you sell have at least some positive profit margin (profit margin = selling price - overall cost of the product or service). With negative margin (i.e. when overall cost of product or service is more than selling price) with increased sales, you will end up making huge losses.
  • Therefore, each sale must make a positive profit by having positive margin.
  • You can also make more profit by the same level of sales if profit margin for your product or service goes up which is possible in two ways: 1. Increase the selling price and 2. Decrease the overall cost.
  • Now, you cannot increase the selling price in a highly competitive global market because with increase in price, your customers will not buy from you. So, the best thing will be to reduce the overall cost of product or service. Overall cost includes all the costs incurred in delivering the product or service to the customer which is inclusive of all the manufacturing and distribution costs.
  • In a market where it is very difficult to increase your market share or share of business, reducing the overall costs is a great strategy.

Also refer: (Cost Management), (Cost of Quality- COQ)

Hence, the Golden Rule

Keep giving more value for money to your customers (always more than what your competitors are providing), keep selling more to more customers and keep reducing the overall costs of manufacture and distribution of your products and services.

Product Mix and Profit

  • Strategic decisions regarding working out the product mix or services mix has a great bearing on maximization of profits. However, for these decisions to be correct, one should consider the products' costs (and costs of services), profit margins of the products (and services), market demands for the products (and services).
  • However, the first hurdle most of the time is non-availability of correct and accurate product /service cost data and therefore, the data on profit margin is also not correct/accurate. This can be solved by working out the accurate product cost. Activity based costing concepts can facilitate this. Refer: (Activity Based Costing- ABC)
  • Then, one can take very useful and correct decisions on products (services) mix to maximize the profits for the company. In doing so, you are now armed to take decisions on cost reduction programs on specific products/services, pushing marketing efforts on some products/services and phasing out of some products/services etc.

For More Guidance, Assistance, Training and Consultation


Also refer: (Prodcons Group), (Training Programs by Prodcons Group), (Principled People)

Other Topics of Interest

All Management Topics (General Management, Marketing and Sales, Service, Operations/Manufacturing, Quality, Maintenance, Human Resources, Finance and Accounts, Information Technology, Life Management)

The topics are listed in alphabetic order:

(Home Pages for All the Management Topics) and
(Alphabetic List of All Management Topics)
(Home Page for Writings of Shyam Bhatawdekar)
(5S Housekeeping)
(Activity Based Costing- ABC)
(Anger Management)
(A to Z of Management Systems)
(A to Z of Quality Techniques)
(Balanced Scorecard)
(Behavioral Safety)
(Books- Best Management Books)
(Business Ethics and Ethics in Management)
(Business Process Reengineering- BPR)
(Career Planning within Organizations)
(Case Method)
(CEO Roles, Qualities and Competencies)
(Change Management)
(Competencies- Life Management)
(Competency Matrix)
(Conflict Management)
(Corporate Governance)
(Cost Management)
(Cost of Quality- COQ)
(Counseling at Workplace)
(Creativity and Innovation)
(Critical Thinking skills)
(Cross Cultural Etiquette and Manners)
(Customer Orientation)
(Customer Relationship management- CRM)
(Daily Management)
(Decision Making)
(Design for Manufacture)
(Dining Etiquette and Table Manners)
(Discipline at Work)
(Dream Exotic)
(Effectiveness and Efficiency)
(Effectiveness Management: HSoftware)
(Email Etiquette)
(Emotional Intelligence)
(Enterprise Resource Planning- ERP)
(Entrepreneurship and Entrepreneur)
(Executive Etiquette and Manners)
(Exit Interview)
(Financial Ratios and Financial Ratio Analysis)
(Financial Services)
(Functions of Management)
(Gemba Kaizen)
(Genuine Professional)
(Global Mindset)
(Goal/Target Setting)
(Group Discussion)
(Group Dynamics)
(How to Be a Good Boss)
(How to Get Promoted)
(How to save Money)
(HR Dynamics)
(HR Strategies and Functions)
(Human Capital Architecture)
(Human Relations)
(Human Resource Planning)
(Human Software- HSoftware)
(Interpersonal Relations)
(Interview Skills)
(Interview Preparation for Job Seekers)
(Interview Questions)
(Just in Time Management- JIT)
(Knowledge Management)
(Lead Time Management)
(Lean Enterprise)
(Learning Organization)
(Life Management: Competencies)
(Life Management: Effectiveness Management: HSoftware)
(Life Management: I Am Liberated)
(Life Positions and OKness)
(Life Skills)
(Management Anecdotes)
(Management Book- Best Books)
(Management Information System- MIS)
(Managing/conducting Meetings)
(Marginal Utility)
(Marketing Management Overview)
(Marketing Orientation)
(Marketing Management Tasks)
(Market research)
(Market Segmentation)
(Negotiation Skills)
(Negotiation Tactics)
(Objection Handling)
(Organization Development- OD)
(Organizational Culture)
(Out of Box Ideas)
(Ownership on Job)
(Paradigm and Paradigm Shift)
(Performance Management and Appraisal)
(Positive Strokes)
(Presentation Skills)
(Problem Solving)
(Profit Improvement)
(Project Management)
(Quality Circles History)
(Quality Circles)
(Quality Function Deployment- QFD and House of Quality)
(Quality Gurus)
(Recession Management)
(Recruitment and Selection)
(Research Methodology)
(Safety and Health Management)
(Sales/Selling Process)
(Sales Promotion)
(Self development)
(Six Sigma)
(Six Thinking Hats)
(Soft Skills)
(Spiritual Quotient/Intelligence)
(Strategic Management)
(Stress Management)
(Stress Management)
(Supply Chain Management)
(Supply and Demand)
(Talent Management)
(Team Building)
(Telephone Etiquette)
(Three Sixty Degrees Appraisal System)
(Time Management)
(Total Productive Maintenance- TPM)
(Total Quality Management- TQM)
(Training and Development)
(Trainers’ Qualities)
(Transaction Analysis- TA)
(TRIZ- Inventive Problem Solving)
(Value Engineering/Analysis)
(Winners and Losers)
(World Class Manufacturing)
(Written Communication)
(Zero Based Budgeting)

Counseling: General and Psychological
(Anger Management)
(Children’s Behavior Problems)
(Cholesterol Control)
(Counseling: Psychological)
(Counseling: Psychological)
(Cross Cultural Etiquette)
(Executive Etiquette and Manners)
(Family Counseling)
(Health: Homeopathy)
(LifeManagement: Competencies)
(Life Management: Effectiveness Management: HSoftware)
(Life management: I Am Liberated)
(Marriage Counseling)
(Ownership on Job)
(Parental Responsibilities)
(Qualities of Spouse)
(Quit Smoking)
(Self Development)
(Stress Management)
(Stress Management)
(Swine Flu and Its Prevention)
(Telephone Etiquette)
(Winners and Losers)

About All the Products
(Home Page for All Products)
(Greeting Cards)
(Mobile Phones)

Home Tips
(Home Page for All Home Tips)
(Entertainment: Movies)
(Oscar Award Movies)
(Entertainment- Hindi Movies of Your Choice)
(Health: Homeopathy)
(Housekeeping at Home)
(How to Save Money) or
(Recipes: Easy to Cook)
(Recipes: Exotic)
(Stories for Children)
(Travel and Sightseeing- India)
(Travel and Sightseeing- World)

General Knowledge and Out of Box Ideas
(General Knowledge- GK)
(General Knowledge- Top 5/Top 10)
(Out of Box Ideas)
(Shyam Bhatawdekar’s Knols)