Methods of improving profit
- Created by: Cadenza146
- Created on: 24-05-21 13:08
View mindmap
- Methods of Improving Profit
- Sales
- Increase quantity sold
- higher sales volume = higher sales
- makes better use of production capacity
- may result in higher market share
- depends on elasticity of demand
- business may not have the capaity to sell more
- may not work
- competitors are likely to respond
- Increase selling price
- higher sales
- maximises value extracted from customers
- customers may perceive product as higher quality
- will work if customers remain loyal
- depends on PED
- will it work?
- competitors are likely to lower prices
- customers may go to competitors
- will it work?
- Increase quantity sold
- Variable Costs
- Reduce variable costs per unit
- will it work?
- yes
- if suppliers an be persuaded to offer better prices
- if quality can be improved through lower wastage
- if operations can be organised more efficiently
- no
- lower input costs might lead to lower quality inputs, greater wastage
- customers might notice a decrease in product quality
- yes
- will it work?
- Reduce variable costs per unit
- Fixed Costs
- Reduce fixed costs
- drop in fixed costs translates directly into higher profits
- reduces break-even output
- savins to be made by cuting unnecessary overheads
- will it work?
- yes
- provided cost cuts don't affect quality
- a business can nearly always find savings in overheads
- no
- might reduce ability of business to increase sales
- lower morale after making redundancies
- yes
- Increase output
- greater quantity of product to be sold
- business can maximise share of market demand
- spreads fixed costs over a greater number of units
- will it work?
- business can maximise share of market demand
- greater quantity of product to be sold
- yes
- if extra output can be sold
- if business has spare capacity
- no
- what if demand is not there?
- fixed costs may rise
- production quality may be compromised
- will it work?
- Reduce fixed costs
- Absolute terms
- increase total profit
- Relative terms
- increase profit margin
- return on capital
- Reduce product range
- business often has too many products
- = complex operations and inefficiency
- some products may be very low-margin or even loss-making
- business often has too many products
- Outsource non-essential functions
- way of reducing fixed costs
- focus the business on what it is good at
- areas to outsource - IT, call handling, finance
- Sales
Similar Business Studies resources:
Teacher recommended
Comments
No comments have yet been made