The profit curve of a firm is the total revenue (TR) curve less the total cost (TC) curve. these curves display the fluctuations of cost or revenue (Vertical Axis) at a given levels of output (increasing along Horizontal Axis).
Along the section of the curve where Total Cost is below Total Revenue, the point at which the 1st derivative of the Total Cost (TC) Curve is parallel (B) with the Total Revenue curve represents the level of output where Profit is maximized (A).
So now that you know this, what are the variables that you, the Business Owner, can address that impact “The Profit Curve”?
There are Six areas of your Business that you can address by defining Strategies, implementing Actions to increase Profits. Over the next few weeks, we will look in details to all six.
As your ultimate goal in your Business is to increase profits let’s look at the Six areas of your Business to address for profits are:
- Personal Profitability
- People Profitability
- Customer Profitability
- Sales / Marketing Profitability
- Product / Service Profitability
- Market Profitability
If you sell into more than one market, the same principle applies. Some markets will be more profitable than others.
When dealing in foreign markets, for example, you may incur much higher
advertising and marketing costs. Conversely, your manufacturing costs might be significantly lower. If you export your product / Service into foreign countries, import duties or tariffs may apply.
At times, unexpected costs in dealing in new markets may make the difference between a profitable venture and a financial disaster. An independent distributor of home electronic goods based in the US decided to enter the Canadian market. He was shocked to learn that, to sell in the
province of Quebec, he would have to redesign his packaging, featuring French as well as English. Considering the size of the market, the additional cost was prohibitive and as a result, he decided to abandon the entire Canadian venture. It pays to do your homework up-front!
Examine your markets. Are some more profitable than others? Do some require higher advertising and promotion budgets to reach your sales targets? Is there a difference in terms of product returns? What about customer service costs after the sale? Do you incur any additional shipping costs, tariffs or other extraneous expenses when you sell into markets beyond your locale?
As you continue to grow your business by driving sales, remember that the critical measure of success in any business is profits. Develop the habit of regularly examining the profitability of your Market Profitability.
For more information on HOW you can contact one of our Business Coaches at: 1.610.768.7774.