The perception that revenue and sales increases profits is not necessarily true. In fact in a number of situations it can be determined that the opposite effect is achieved, with increased sales resulting in a reduction of profitability levels. As can be seen from the reading of any financial section of the newspapers or listening to other media, often businesses are reporting losses even though they have increased the level of sales and revenue.

Profits can be increased in a number of ways, without these having the slightest effect upon sales. Perhaps one of the most obvious of these is the elimination of waste. Occasionally, every business should perform a spring clean, designed to eliminate areas of waste from the business operations and process. For example, it might be found that there is a waste of material due to over measuring. Take a case where a block of timber is used to create cabinet doors. In this case, the business might find that out of a standard size block, and based upon the positioning of the door template, they can only get three doors. However, by changing the position of the templates, it is possible that the number of doors produced could be increased to four. Thus, the business is eliminating waste, which will save money as the stock of wood required would be reduced.

Improving asset use is another area where profits can be increased. In this case, it may be that by increasing the speed of the production machine the number of product units produced in a day can be increased with no more costs being added, such as staff and overheads. This will increase the profit made on each unit. For example, if a widget was previously sold for $1 but cost $0.80 to make, the profit was $0.20. However, if the process of production is speeded up it could mean that, whilst the sale price remained the same, the cost might have fallen by a further $0.20 per unit, thus doubling the unit profit.

Another way of increasing profits is to look at reducing overhead and running costs. For example, travel expenses can cost a lot of money. However, if the company vehicles are changed from "gas guzzlers" to more economical cars, or from petrol to diesel, this can have a significant impact on reducing costs, which naturally will increase the profits made.

Finally, although the following may not be liked by potential employees, the possibility exists to increase profits by making more use of technology and, as a result, reducing the wage costs. Computers and other technological processes do not cost as much per hour as people and therefore their use increases the business profits. A good example of this can be seen in supermarkets and airports, where staff are being replaced by automated check-outs and, in the latter case, check-ins.

All of the elements outlined above have the effect of increasing a businesses profit, purely because they reduce the cost that business has to pay out. Furthermore, in all of these instances there is no need to increase revenue to achieve the additional profit.

Learn more about this author, Paul Lines.
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