- Profitability management involves :: the control of both the business’ costs and its revenue.
Cost controls
Fixed and variable costs
- Fixed costs are :: not dependent on the level of operating activity in a business.
- includes salaries, depreciation and leases
- Variable costs are :: those that change proportionately with the level of operating activity
- includes: materials, labour and advertising
Cost centres
- cost centres are :: particular areas, departments or sections of a business to which costs can be directly attributed
- Direct costs are those that can be allocated to a particular product
- Indirect costs are those that are shared by more than one product
Expense minimisation
- Expense minimisation is :: a financial strategy that aims to achieve the most cost-effective way of delivering goods and services to the required level of quality
Revenue controls
- Revenue is the income earned from the main activity of a business.
- e.g. from sales
- increase revenue → increased profitability
- increase revenue through primarily consolidating Marketing objectives
Marketing objectives
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Marketing strategies are employed in attempt to increase sales and revenue
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any changes to a business’ sales mix can affect revenue however, they still must maintain a clear focus on customer orientation