AQA BUSS2 Topic 2 - Measuring & Increasing Profit

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Why businesses should aim to improve profits

  • Earn better returns for investors
  • Stop the business from suffering losses
  • Improve internal sources of finance
  • Provide a better return on investment made in new products or capacity 
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Ways to increase profit

Sales: increase quantity sold or raise prices

Less variable costs: reduce variable cost per unit

Less fixed costs: increase output (economies of scale) and reduce overheads

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Strategy - try to sell more volume


  • higher volumes = higher revenues if selling price is not lower
  • better use of production capacity i.e. fixed costs should not rise
  • may result in higher market share

Will it work?

  • depends on elasticity of demand
  • sales value may actually fall if price has to be lowered
  • does business have capacity to sell more?

Reasons why it may fail:

  • competitors are likely to respond 
  • marketing efforts may fail e.g. promotional campaign does not generate results
  • fixed costs might actually rise e.g. higher marketing
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Strategy - increase selling prices


  • 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 price elasticity of demand
  • sales value may actually fall if price rise is matched by an even bigger fall in quantity sold
  • will work if customers remain loyal

Reasons why it may fail:

  • competitors likely to respond e.g. prices lower
  • customers may decide to switch to competitors
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Strategy - increase production output


  • provides greater quantity of product to be sold
  • enables business to maximise share of market demand
  • spreads fixed costs over a greater number of units 

Will it work?

  • yes if the extra output can be sold 
  • yes if the business has spare capacity

Reasons why it may fail:

  • a dangerous option - what if the demand is not there?
  • fixed costs might actually rise
  • production quality might be compromised (lowered) in the rush to produce more
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Strategy - reduce fixed costs & overheads


  • a drop in fixed costs feeds directly into higher profits 
  • reduces the break-even output
  • potential for substantial savings which can be sustained

Will it work?

  • yes, provided costs cut doesn't affect quality, customer service, or output
  • a business can nearly always find savings in overheads

Reasons why it may fail:

  • might reduce ability of business to increase sales
  • intangible costs - e.g. lower morale after making redundancies
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