There are only 3 ways to maximum profit – cut expenses, sell more products or increase the price of your product.
The primary reason for any business’s existence is PROFIT. If a business does not produce a profit, it cannot justify its existence, nor can it carry on doing business in future. A business needs funding to take care of operation expenses – and unless you want to keep funding it from your own pocket, or upset shareholders, you need an income that will at least cover total expenses. There are 3 ways to maximum profit in your business.
Thus – total revenue must exceed total expenses in order to generate a profit. Simple, isn’t it?
If your business is not profitable today, it merely means that either your expenses are to high OR that your revenue is not high enough. Increasing revenue and/or decreasing expenses should then be your primary focus.
Only 3 options to maximum profit
So what are the ONLY three things that you should address?
Cut expenses
Decreasing expenses is a very effective way to will increase your profit (or put another way – decrease your loss). Example: Cut your total expense by 10%. Examples – find new suppliers of stock, stationery, insurance, outsourcing, etc.
| Current | Future | Change | |
| Total Income (revenue) | R40 000 | R40 000 | 0% |
| Total Expenses | R30 000 | R27 000 | 10% – |
| Profit | R10 000 | R13 000 | 30% + |
NOTE: In the example above, a 10% decrease in expenses will lead to a 30% increase in profit.
Increase selling price
When last did you increase your selling price? It is true that customers “expect” yearly price increases, at least in line with inflation. However, many small businesses believe, wrongly, that they will lose sales if they increase their price. It is suggested that you have a yearly increase of at least 5 – 10%.
| Current | Future | Change | |
| Total Income (revenue) | R40 000 | R44 000 | 10% |
| Total Expenses | R30 000 | R30 000 | 0% |
| Profit | R10 000 | R14 000 | 40% + |
NOTE: In the example above, a 10% increase in the selling price will lead to a 40% increase in profit.
Increase sales volume
Is it really too optimistic to believe that you can increase your sales by at least 10%? How about promotions, sending emails / sms to existing customers, finding a new market, getting customers to use your product more? There are a myriad of marketing strategies that will enable you to increase sales by at least 10%!
| Current | Future | Change | |
| Total Income (revenue) | R40 000 | R44 000 | 10% |
| Total Expenses | R30 000 | R30 000 | 0% |
| Profit | R10 000 | R14 000 | 40% + |
NOTE: In the example above, a 10% increase in sales volume will lead to a 40% increase in profit.
In summary:
| Current | Future | Change | |
| Total Income (revenue) | R40 000 | R48 400 | 10% + in sales AND 10% + in volume |
| Total Expenses | R30 000 | R27 000 | 10% – |
| Profit | R10 000 | R21 400 | 114% + |
What will the result be if we can affect ALL the above changes in our business? A 10% increase in sales volume AND a 10% increase in selling price AND a 10% decrease in expenses will lead to a 114% increase in profit.
Let Prof Gary help you maximise profit in your business. Contact him today!