The primary mission of a business should be long-term, sustained profitability not just revenue growth. “Profitability is a measurement of efficiency.” It is ultimately the deciding factor in the success or failure of a business. It is expressed as a relative not an absolute amount.
Profitability is the ability of a business to produce a return on an investment based on the utilization of its resources in comparison with an alternative investment over a defined period of time. Although a company can realize a profit, this does not necessarily mean the company is profitable.
Revenue versus Profit Growth
Revenue minus expense equals profit. More revenue from sales does not always mean more profit. Revenue is only part of the equation. A business must keep their costs as low as possible to make sure it is maximizing its profits. How do you maximize profits?
The key is to answer some very important questions about your business relative to your industry. Some of these questions are as follows:
What is the state of your industry relative to the overall economy?
How big is your market opportunity and how fast is it emerging?
Is your business privately owned or backed by venture capital?
Is your organization the first supplier in the marketplace?
Does your firm have patents, trademarks or a significant amount of product complexity to protect your market position?
Do you have a competitive advantage in the industry that you can increase overtime?
Many organizations depend on revenue growth to drive the scale of the business. The real determinant of growth is creating long-term profitability through increasingly efficient operations. This point is demonstrated in a Pacific Crest Group (PCG) case study that highlights a “Bay Area Oncology Clinic.” The largest impact in increasing profits reside in the inflection points which exist in the company’s growth curve. In this particular case, PCG found the best course of action was to establish an in-house pharmacy that specializes in new oral medications for cancer patients. These types of drugs are normally only available from specialty pharmacies.
Building a New Business Model
Pacific Crest Group helped establish new partnerships with vendors who distributed these drugs. New agreements were forged with insurance companies to help cover the costs of prescriptions. In the end, profits increased as a result of the new business model, assistance in hiring a new pharmaceutical technician well versed in this area of the business and upgrading their accounting system with performance tracking abilities to provide easy access to data for real-time decision making.
Pacific Crest Group (PCG) provides professional services that keep your business focused on your critical objectives. We provide strategic Accounting and Human Resource (HR) services created specifically to help you meet your goals. Through exemplary customer service, clearly defined policies and procedures as well as a forward looking perspective, we provide the outsourced solutions that your business needs to grow. A PCG professional is happy to meet with you to discuss solutions for your unique requirements designed to maximize all of your business opportunities.