Growth and profitability are important aspects of any businesses. However, it is important to remember that they are not the same thing. Also, that they are not mutually exclusive. Profitability can be considered the measure of efficiency. This means that even if a company makes profit, it is not necessary that it can be considered profitable. A comparison of investment made versus alternate investment available describes what an organization’s profitability is. In the sense, it is the opportunity cost of the decisions made by an organization that is producing results that ensures an organization is profitable.
On the other hand, growth is fairly straightforward and can be measured in simple numbers. This is where things get a little tricky for organizations that go after growth because that is more measurable and quantifiable. Often focusing on just growth and profits could potentially make the organization grow in the short run; however, you as an organization run the risk of this leading to myopic decision making that may make you take the wrong decision. This shortsighted decision could eventually lead to bad long-term decisions in terms of work and revenue models.
An organizations growth and profits cannot be the only determining force for organizations. Profitability enables organizations to enable organizations to actually measure if the resources that they are pumping into the organization are actually utilized optimally. Profitability of an organization can also be calculated by the productivity of the workers. This can be measured by the economic concept of marginal utility. Marginal utility enables you to measure the exact number of people you need to employ to get the job done optimally. As you add more employees to the mix than you require though the growth and profit may not reflect a change, there will be a decrease in your overall profitability.
In the long term, it is not business models that focuses on growth alone that will help increase your organizations potential to grow. You will have to focus on business models that increase your profitability and make your return on investment worth the while.
Here are some ideas to keep a check on profitability within your organization.
Expenses: Keep a watch on where and how the expenses are going out of your organization. Keeping an eye out for how your spending is being prioritized. Whether it is in real estate or any such immovable assets, ensure that you spend wisely and only invest based on home much you are predicting the growth.
Negotiation: Finding the best possible deal is an important part of any business. This includes negotiating with vendors, handling services, booking flight tickets, pretty much anything. Make sure that you are always in conversation for the best deals available. Even the smallest of good deals overall add to the outcome of how much you save.
Forecast: Always rely on forecasting, not just profits, but also costs that are around the corner. Especially while making decisions, always evaluate them in terms of risks and mitigation plans. If something is extremely risky, it could be that you would prefer to use an alternative to reduce the risk and maximize returns.
Customer First: Make sure you are focusing on your customer. Look at not just how you can focus on your customer but also how you can benefit them. The more you look towards customer benefit, the higher the chances of footfall. Additionally, focus on customer benefit not just focus on the customers. When customers see that your product or service is benefiting them they will come back for more.
Profitable Products: You might have a host of products, all of which you think are good ideas. However, the market might want a particular one. Focus your efforts and your sales teams efforts on pushing the product that works with the market. This always helps in the long run. Do not invest heavily on products or services that are not working with your end user.
Incentivize: Everyone loves incentives. It makes them work harder and come back for more as well. So incentivize – both to your customers and your employees. Offer discounts, benefits and other such incentives to your end users. When they see the benefits they are bound to come back for more.
Simplify Design: Not just the product or service alone, make sure your end-user has a seamless experience while purchasing your product or service. When your product or service is easy to buy, they will come back for more and also spread the word out to their universe to increase your sales further.
Market Vs. Market Share: Try not just to just increase your market share, try and focus on how you can increase your market. This, in the long run, will help you increase profitability, ensuring that you are not rendered irrelevant in the long run. So, ensure that you are monitoring the pulse of the market.
Cost: Ensure that the costs that you are investing are directly relatable to your customer’s benefit. This will not just ensure that your costs incurred are directly providing benefits, it will also ensure that you are not spending on things that do not lead to profits.
Overall, profitability is important for the sustainability of a business. There are multiple things you can do to increase your profitability. However, it is important that you focus on the steps that not just grow your organization but also make them profitable over a period of time. Profitability of an organization is a very important metric that is determined by the scope of the company’s profit in direct relation to the size of the business. This needs to be constantly monitored and improved.
There are a number of tools that can be used to increase profitability. Profitability index can be used to determine a new idea is worth exploring. This will ensure that you as an organization do not invest heavily in ideas that may not work. Profitability index will determine the present value of a project in comparisons to future cash flows. So, spend some time focusing on profitability to ensure that you are not just growing as an organization but also increasing your profitability.