What is Profitability?, with Bill McDermott, Host of ProfitSense
In this commentary from a recent episode of ProfitSense, Bill McDermott, The Profitability Coach, defines profitability and discusses the dynamics behind it.
Bill’s commentary was taken from this episode of ProfitSense.
ProfitSense with Bill McDermott is produced by John Ray and the North Fulton Studio of Business RadioX® in Alpharetta.
Transcript
I want to take a moment and share with our listeners the question, what is profitability anyway? Today, I’d like to talk about profitability being the profitability coach. That’s a word we throw out a lot, but what exactly is profitability? Simply stated, profitability is how efficiently a company makes a profit.
A high gross or net margin shows a company is highly efficient in profitability. A low gross or net margin is highly inefficient in profitability. However, there are industry norms which can also dictate profitability. Service businesses usually make. Higher margins manufacturers typically lower. And the primary reason is manufacturers typically are more asset intensive than a service businesses are.
So how does a company increase profitability? Revenue, often called the top line, is the total income generated from the sale of goods or services. Increasing revenue is crucial for success and can often be done through things like developing a marketing strategy and diversifying offerings. It’s also important to manage costs effectively.
Costs are expenses incurred in running a business, including products and materials, labor, rent, utilities, and marketing expenses. Understanding the difference between fixed costs, expenses that remain constant regardless of production levels, like rent, and variable costs, expenses that vary with production, like ingredients, can help business owners make informed decisions to maximize profitability.
Try keeping fixed costs low and efficient as well as managing variable costs. With a solid understanding of profitability, success is within reach. How are you doing with your profitability?
