Business Profitability
Overview
The integrated view of the firm takes both the costs and revenues together to calculate the
profits, otherwise known as the
bottom line.
The mathematical framework for understanding profitability is addressed within
the
microeconomics of the firm.
(see
Profits in Micro-economics )
Achieving Higher Profitability
There are multiple ways to try to increase profitablity, usually categorized by whether the strategy involves developing new products,
or focuses on the current mix of products that the firm offers.
Fixed Products -
When the product lineup is fixed, (that is, the firm is not seeking to introduce new products or services),
the firm has a set of levers it can pull to affect profitability. Each lever is designed to
affect either the firms revenues or costs (or both)
- Pricing -
seeks to increase profits through either raising or lowering the price of the product.
- Marketing and Sales Spend
- increasing the marketing efforts of the firm will increase both revenue and expenses. The challengeis to
find the appropriate level that will maximize profits.
- Operational Efficiencies
- focuses solely on decreasing expenses
- Project Management
- seeks to cut costs through efficient project management, and increase revenues through better product quality.
New Products -
