Increasing profits under limited resources

TL;DR decreasing expenses by even slight margin can increase profits exponentially as opposed to increasing price.

 

At times it gets very expensive or hard to grow due to multiple restrictions. Example could be running a hotel which has limited number of rooms. There are 2 very obvious ways to increase profits

#1 Increase the revenues

#2 Decrease expenses

Mostly people will prefer to go with #1 to grown profits. #1 looks like an easy option where you just increase the rents by 5% and boom, you have grown by 5% but we ignore that there are extra cost associated with this increase & wont result into 5% growth.

Now consider #2, where if you are able to decrease the expenses by just 1% of the total revenue, profits will grow by 10%.

*  Supposing gross margins = 10%

2016-03-06T15:47:39+00:00September 24th, 2015|Categories: Startups|2 Comments

2 Comments

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