Profitability monitoring is essential for a company’s success. It involves evaluating revenue, marketing, and support services to ensure that the company is generating enough revenue to cover costs and make a net profit. Viability control involves eliminating non-essential functions to increase net profit.
One of the main reasons companies are born is to make money. As the old saying goes, if the outgo exceeds the income, then upkeep becomes the bane. In short, if it costs more than the amount of revenue generated to cover expenses and make a little extra, the company will soon fold. When it comes to making sure the company stays healthy, someone has to be on the job of overseeing profitability. Here are some things every businessman should understand about the profitability process and his role in maintaining a healthy business.
In its broadest sense, profitability monitoring is the process of evaluating the revenue-producing ability of the goods and services offered, as well as evaluating the support services required to market and produce the good or service. The idea is to make sure that any product or service you offer is generating enough revenue to not only cover the total cost of making the good or service available, but also make a net profit for the business.
For example, a long distance service provider will need to ensure that its service offering is priced to strike a balance between being competitive and covering all costs associated with providing the service. This will include generating sufficient gross profit to enable the company to hire individuals capable of adequately servicing client accounts, such as customer service personnel, accounting personnel, and technical support personnel.
From a marketing perspective, there is also a need to develop marketing collateral that can be used in PR campaigns and by the sales force. One segment of profit control is the need to maintain marketing control; that is, to ensure that the cost of advertising the service can be recouped within a reasonable amount of time from the gross profits generated by the sales effort. Without enough gross profits to make the effort worthwhile, the company will soon fold.
In addition to being able to cover all operating, marketing and sales costs, the business will also want to make a net profit from the service it provides. Lack of profitability, demonstrated by making a net profit, will eventually mean that the company will have no real reason to exist and will cease. The only way to avoid this situation is to engage in profitability monitoring and ensure that all company resources are used to maximum efficiency.
For example, a company that is managing to cover all expenses, but still has little to prove for its efforts, will want to evaluate every aspect of the operation, from personnel to procedures. If there are items that can be eliminated or combined without compromising efficiency, profitability control requires that such actions take place. If the operation were to be determined to be very heavy on managers or executives, making some changes to those levels would be in line with sound profitability control procedures. In the event that some aspects of the operation are outsourced and it is determined that they can be performed just as well in-house and at a lower cost, then making those changes falls under the relevant viability control category.
Ultimately, viability control is all about doing what’s in the best interests of the ongoing life of the business, whether that’s eliminating or combining functions, pulling responsibilities in-house, or outsourcing them at a lower cost. While the details will vary from company to company, as long as the concept of maintaining quality by eliminating the non-essentials will result in higher net profit, which will make everyone involved very happy.
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