Profit Improvement: 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) http://customer-orientation.blogspot.com/

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) http://customer-relationship-crm.blogspot.com/

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) http://cost-management-control.blogspot.com/, (Cost of Quality- COQ) http://cost-of-quality.blogspot.com/

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) http://activitybased-costing.blogspot.com/
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

Contact: prodcons@prodcons.com

Also refer: (Prodcons Group) http://prodcons-group.blogspot.com/, (Training Programs by Prodcons Group) http://training-development-function.blogspot.com/, (Principled People) http://principledpeople.blogspot.com/

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: