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In this article, let's look deeper into how every business operation and efficiency affects your profitability. We do business for profits, but we seldom analyse how each operation affects your profitability. We may think that getting a good sales price would get enough profits.
However, there are many factors that need to be looked into.
So let's take a look at how every operation and efficiency hits or makes profitability. It's like a make or break kind of situation. For example, you have taken an order with an estimated 20% profit.
You've taken material costs, labour, other expenses, and that's it. Now, what if the material that you bought was not a good quality and the amount of yield that you expected and the actual yield is different.
100 kg. of material was to yield 90 kg of finished product, but in reality, it has yielded only 85 kgs. Which means you have lost 5 kgs. worth material from your profitability right at the production level.
Do you get the linkage between the operational efficiency and profitability? Taking it a little more further, you have hired labour at a certain cost per day with an estimated 20 workers to complete the job. However, in reality, you needed 30 workers. Again, it affects your profitability because of the additional costs incurred. There could be other related expenses too, which again affects the profit margins.
Thus, every aspect – hiring labour, buying material, are going to affect your profitability if a deeper analysis is not done prior to starting production, or even giving a quotation. Operational efficiency is the key to profitability.
So what do we take away from this? Every business operation has an impact on profitability. It is very, very important to assess the efficiency, effectiveness and optimization that we can achieve in every business operation, reviewing every business operation in terms of profitability to keep this process a very regular exercise, and is not a one-time exercise. It has to be a habit – a routine – as natural as breathing.
We at Maxentra are always there to help you in formulating and structuring good business practices through mentoring and business consultancy. Do reach out if you need any more help.Links for all Business Articles: