Measuring & Increasing Profit

HideShow resource information
  • Created by: Nadia
  • Created on: 27-04-13 17:58
View mindmap
  • MEASURING & INCREASING PROFIT
    • WHY IMPROVE PROFIT?
      • Earn better returns for investors
      • Stop the business from suffering from losses
      • Improve internal sources of finance
      • Provide a better return on investment made in new products of capacity
    • WAYS TO INCREASE PROFIT
      • Increase quantity/raise prices
      • Reduce VC per output
      • Increase output (economies of scale)
      • Reduce overheads
    • SELL MORE VOLUME
      • WHY?
        • Higher volumes = higher revenue (if SP is not lowered)
        • Better use of production capacity (if FC do not rise)
        • May result in higher market share
      • WILL IT WORK?
        • Depends on elasticity of demand
        • Sales value may fall if price has to be lowered
        • Does business have capacity to sell more?
      • WHY MIGHT IT FAIL?
        • Competitors likely to respond
        • Marketing efforts may fail - e.g promotional campaign that does not generate results
        • FC might rise - e.g higher marketing
    • INCREASE SELLING PRICES?
      • WHY?
        • Higher price = higher sales (if quantity sold does not fall)
        • Customers may perceive  product as higher quality
        • No need for extra capacity
      • WILL IT WORK?
        • Depends on elasticity of demand
        • Sales value may fall price rise is matched by an even bigger fall in quantity in quantity sold
        • Will work if customers remain loyal
      • WHY IT MIGHT FAIL?
        • Competitors likely to respond (e.g prices lower)
        • Customers may decided to switch to competitors
    • INCREASE PRODUCTION OUTPUT
      • WHY?
        • Provides greater quanttity of products to be sold
        • Enables business to maximise share of marker demand
        • Spreads FC over a greater numberof units
      • WILL IT WORK?
        • Yes, If the extra output can be sold (e.g finding a new market,offering lower price for a more basic product)
        • Yes, If the business has spare capacity
      • WHY IT MIGHT FAIL?
        • Dangerous option - if demand is not there?
        • FC may rise (e.g stepped FC)
        • Production quality might be compromised in the rush to produce more
    • REDUCE FC AND OVERHEARDS
      • WHY?
        • A drop in FCfeeds directlyto higher profits
        • Reduces the break even output
        • Potential for substantial savings which can be sustained
      • WILL IT WORK?
        • Yes, provided cost cuts don't affect quality,customer service or output
        • A business can nearly always find savings in   overheards
      • WHY IT MIGHT FAIL?
        • Might reduce the businesses ability to increase sales
        • Intangible costs -e.g lower morale after making redundancies

Comments

No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all Financial Planning resources »