Profits vs. Profitability: The Significance of Tracking Profit Margins

//Profits vs. Profitability: The Significance of Tracking Profit Margins

Profits vs. Profitability: The Significance of Tracking Profit Margins

The two basics of increasing your business profit are reducing your business costs and increase your revenues. The traditional idea of increasing revenue through increasing sales is not exactly in the hands of the business owner. Hence an attempt to escalating sales in order to increase revenue may end up with reducing profits. So the smartest way of increasing profit is to implement marketing strategies. This is an ultimate tool for cost-cutting measures which results in ultimate profit maximization.

                                                      

Smart business owners do not only consider profit to gain a good return. Profits alone can be deceiving. There is a hell lot of aspects associated with it while you are thinking to increase the profit. The figure which you get after adding up total revenues and subtracting total associated costs is the profit for the business. Profit, as we all know, a measuring yard for business success, is not very true.

The profit generated should be compared with the money invested and resources employed to earn the amount of revenue.

Consider a situation where Mr. A is earning $100,000 of profits by investing $800,000. And at the same time, Mr. B generates the same profit of $100,000 by spending $400,000 only. Both of them earning the same amount of profit $100,000, hence they cannot be called as equally profitable.

So the profit alone can be deceiving. Taking into account all associated aspects can give you the real profitability scenario. It is significant to know about profitability rather than attracted by the mere profit figures.

Referring to the same example if Company A is spending $20,000 on insurance its profit reduced to $80,000. Company B can choose to reduce the profit margin by $10,000 only by spending less on insurance. And his profits drop to $90,000. Thus by implementing cost control method Company B is now making $10,000 more in profit than Company A.

  • Have a logical Profit Margins Perspective

So having a Realistic Perspective of profit margin is more significant than to track only profit. The profits earned by a business are measured in dollars, where the profit margin is the ratios and percentages. It can be a profit to sales ratio or profit to cost ratio.

  • How to Increase Profit Margin

Profit margin is the more realist way of identifying the long-term solvency and profitability of the business. The business owners should take care to implement strategies for keeping the profit margin as high as possible.

We know two approaches to increase the company’s profit margin. The first one says to increase your cost of production or service costs by raising the prices for your deliverables. This traditional method does not hold good for a competitive digital market where all the business is struggling with the same issue of global competition. Increased prices may not go well with consumer behavior and market performance. So in this perfect competition industry, no business can influence the price level and market behavior. As a result, we feel the second approach to control costs is much safer.

  • The Importance of Cutting Costs

Pay attention to every expense of the business and find a way to reduce the cost as much possible. Cutting Costs can result in a greater profit always. There is no other way to increase your business profit. There is no single strategy that can increase a company’s profitability. One size may not fit for all. It differs from business to business.

We suggest you keep your business operating cot minimum by finding out more options. Consider comparing keeping a separate accounting department with accounting outsourcing service.

Keeping a separate accounting department is always expensive as it includes various other expenses like hunting the talent, grooming them and retaining the staff in your organization for a longer period. Apart from that, you need to spend on insurance, health, and employee benefit plans besides the salary.

Just have a look at outsourcing accounting. This is the best way of trading nowadays where you can keep your cost at a minimum and increase your business profitability. We the Outsourced Bookkeeping services charge you only for the services rendered. You don’t have to pay an extra dollar for anything else.

Consider implementing this cost-cutting strategy to your business to enhance your company’s profitability and persistence in long run.

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