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Profit making is an essential part of business and the very reason that a proprietorship, partnership or company is formed. Irrespective of the size of the business, the ultimate goal for any business organization is to make maximum profits.
Profit making is not just about increasing your revenue multifold by increasing the sales but it is also about minimizing losses in a manner that it influences your profit making ability. Not many in the business world look into the profit-making details and hence lose out on things that can play a role in maximizing profits and minimizing losses.
Increasing revenue and cutting costs are the two basic principles involved in achieving your business goals. Given in this article are simple tips that will help in achieving this goal at ease – without a fuss and without much sweat!
Increasing revenue is the main aspect of profit maximization. Maximizing revenue generation will automatically help in increasing the profits of a business. It is important that you have the basics covered to ensure that this goal is achieved.
Increasing Sales – Improvisation of quality of product or service and using the right promotional methods can help to increase the sales of a business. It is important to have a good marketing strategy and the right implementation routes for the same to ensure a substantial increase in sales.
Up-selling to Existing Customers – This is a sales technique and an important marketing strategy whereby upgrades and enhancements of existing products and services are marketed and sold to existing customers.
Diversification of Product Range – Increasing the product range of a business presents better opportunities to increase revenue as a diversified product range brings in new customers and opens up new market avenues.
Revision of Prices – Prices need to be revised on a regular basis based on the sales turnover and market demand. Independent costs of each product sold needs to be worked out and an optimal balance between sales margins and the quantity sold has to be achieved to ensure increased revenue.
Cost cutting can happen even in the minutest aspect of the business and yet prove to be advantageous when you look at it over a period of time. It is important to know where you need to cut costs. One important rule that you need to remember is that 'never cut costs that are directly or indirectly related to production'. Cost that does not affect the production of the business needs to be looked into and those are the ones that you need to reduce.
Negotiating Price of Supplies – It is important to strike a bargain while purchasing raw materials for products. The price of anything that is bought in bulk can be negotiated. This will help to reduce the cost of production to a large extent.
Efficient Manufacturing Process – Setting up a production line system can help in breaking down the manufacturing process into independent individual tasks that are easy to handle and effective in output.
Bringing Down Opportunity Costs – Opportunity costs are incurred due to a missed opportunity. If machines are purchased instead of a leased agreement, it adds value to the business rather than spending money on lease and rent.
Evaluate Money Spent on Promotion – Ensure that the money spent on sales promotions are paying off otherwise it may be essential to change your promotional strategy. Anything is good as long as it works for you but never take too long to evaluate the impact of a promotional campaign.
Reviewing the Cost Structure – It is imperative to review the cost structure once every now and then. A quick assessment will help to review any additional costs incurred during the production process and change the end price based on that assessment.
Decisions That Have an Impact on Revenue and Cost
At times there are certain business decisions that have an impact on both revenue as well as cost. Reducing sales prices can be one such, where the reduction of price can lead to an increase in demand, in turn creating a need to increase the supply and enhance the production costs, which again can be nullified due to a larger scale of production. This is called the economies of scale which plays a vital role in any production or manufacturing business.
Your employees are the pillars of the business – it is important that they remain motivated to ensure their overall efficiency. Simple motivation techniques can help them stay focused and increase their efficiency. Recognition for their contribution to the company is one of the main motivating factors that augurs well for the rewarded employee and also serves as a motivation for the others to excel and get such rewards in the future.
Effective Risk Management System
It is necessary that a business has an effective risk management system in place that aids in minimizing the business risks. A proper evaluation of the business in essential to ensure that you have your bases covered while implementing the system.
Assessment of probable risks in the business including threats, vulnerabilities, etc., that can have an overall impact on the revenue and cost of the business.
Evaluating the gaps and loop holes in the business that can possibly widen increasing its vulnerability and thereby having an impact on the profits of the business.
Once the risks are identified it is imperative to address them. Controlling and reducing the identified risks can be effected through proper debtor management, internal audits, proper maintenance of machinery and tools, training and development of employees, compliance and a change in the process or system.
Transferring of risks by the way of insurance, outsourcing, partnerships and joint ventures can help in balancing the risk, wherein it can be spread out, reduced or transferred depending on the choice of business deal.
It is pertinent to remember that the business environment is constantly changing and hence there cannot be a permanent strategy in place. Reviews and evaluations of the business process to determine profit and loss needs to be done regularly to ensure that the best possible system is in place so as to maximize profits and minimize losses.
About the Author:
Uma enjoys blogging on a variety of topics and an expert author in writing variety of topics that would guide others to do things in an easier and smarter way. In addition, she is the owner of several career-advice websites. At EZA she hopes to meet new friends and new opportunities.
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