Keys to Enhancing Profitability

By: Joe Romeo

Profitability is an essential ingredient for business success, but too often leaders focus on the wrong things.

When it comes to price avoid competing on price alone

Strongly market your competitive advantage (create one if needed) to differentiate yourself from the competition; avoid competing on a price-only basis.  Continually work to set yourself apart from the competition so you have a value-add that defies the price-only evaluation.

If you are forced to lower your price to stay competitive,  focus on lowering your cost, not your profit. Certain market dynamics are inescapable so be sure to recognize and optimize them.

ELASTICITY

The price of a product or service normally enjoys an inverse relationship with demand for that product; work on ways to lower the price of your product without compromising profit and let the market dynamics work in your favor as demand and sales increase.

PROBABILITY

The branch of mathematics that studies the likelihood of occurrence of random events in order to predict behavior.

Be sure to measure and evaluate your business properly.  Your bread and butter deals/customers are more constantly predictable than are those long shot, random chance  deals and should be weighted accordingly when setting your marketing strategies. 

Play the odds and put the magic of probability to work in your business - don’t leave it to chance.

CULL

Continually cull your deals/business to identify and “cut” the low profit/low margin business.  The traditional bell curve applies here and your bottom 10-20% profit product/service/customers should be eliminated.

STRATEGY

Employ a simple strategy:  keep doing  what works (is most profitable) and cut your losses (least profitable business) quickly to minimize your lowest margin deals.

Keep in mind, Peter Drucker tells us: “Effective Executives work on the right things.”  This is an important mantra to keep in mind as you look to enhance your company’s profitability.  Get additional insights from renowned business consultant and writer Peter Drucker.