Following is a list of the key profit drivers (from the Accounting Blog) for most companies and an explanation of why one driver in particular (price) is far more important than all the others.
For most businesses, there are four major profit drivers:
- Variable Costs (i.e. those costs that vary in direct proportion to revenue, typically represented by cost of sales)
- Fixed Costs (or overhead)
- Sales Volume
BOTTOMLINE: Far and away the most effective strategy for maximizing your company's profit is to aggressively price your products or services, elect to deal only with those customers who see the value that you deliver to them, and not allow price-sensitive customers or competitors dictate your company's pricing strategy across the board. Revenue does not pay the bills or give you the resources you need to grow- that comes from profit.