1.

COMPARATIVE ADVANTAGE OF A COMPANY

What is 'Comparative Advantage'

Comparative advantage is an economic term that refers to an economy's ability

to produce goods and services at a lower opportunity cost than that of trade
partners. A comparative advantage gives a company the ability to sell goods and
services at a lower price than its competitors and realize stronger sales margins.
The law of comparative advantage is popularly attributed to English political
economist David Ricardo and his book “Principles of Political Economy and
Taxation” in 1817, although it is likely that Ricardo's mentor James Mill originated
the analysis.

BREAKING DOWN 'Comparative Advantage'

One of the most important concepts in economic theory, comparative advantage is a
fundamental tenet of the argument that all actors, at all times, can mutually benefit from
cooperation and voluntary trade. It is also a foundational principle in the theory of
international trade.

Key to the understanding of comparative advantage is a solid grasp of opportunity cost.

Put simply, an opportunity cost is the potential benefit that someone loses out on when
selecting a particular option over another. In the case of comparative advantage, the
opportunity cost (that is to say, the potential benefit which has been forfeited) for one
company is lower than that of another. The company with the lower opportunity cost,
and thus the smallest potential benefit which was lost, holds this type of advantage.
Another way to think of comparative advantage is as the best option given a trade-off. If
you're comparing two different options, each of which has a trade-off (some benefits as
well as some disadvantages), the one with the best overall package is the one with the
comparative advantage.

Comparative Advantage vs. Absolute Advantage

Comparative advantage is contrasted with absolute advantage. Absolute advantage
refers to the ability to produce more or better goods and services than somebody else.
Comparative advantage refers to the ability to produce goods and services at a lower
opportunity cost, not necessarily at a greater volume or quality.

To see the difference, consider an attorney and her secretary. The attorney is better at
producing legal services than the secretary and is also a faster typist and organizer. In
this case, the attorney has an absolute advantage in both the production of legal
services and secretarial work.

Nevertheless, they benefit from trade thanks to their comparative advantages and
disadvantages. Suppose the attorney produces $175 per hour in legal services and $25
per hour in secretarial duties. The secretary can produce $0 in legal services and $20 in
secretarial duties in an hour. Here, the role of opportunity cost is crucial.

To produce $25 in income from secretarial work, the attorney must lose $175 in income
by not practicing law. Her opportunity cost of secretarial work is high. She is better off
by producing an hour's worth of legal services and hiring the secretary to type and
organize. The secretary is much better off typing and organizing for the attorney; his
opportunity cost of doing so is low. It’s where his comparative advantage lies.

Comparative Advantage vs. Competitive Advantage

A competitive advantage refers to a company, economy, country, or individual's ability
to provide a stronger value to consumers as compared with its competitors. It is similar
to but distinct from comparative advantage. In order to assume a competitive advantage
over others in the same field or area, it's necessary to accomplish at least one of three
things: the company should be the low-cost provider of its goods or services, it should
offer superior goods or services than its competitors, and/or it should focus on a
particular segment of the consumer pool.

International Trade
David Ricardo famously showed how England and Portugal both benefit by specializing
and trading according to their comparative advantages. In this case, Portugal was able
to make wine at a low cost, while England was able to cheaply manufacture cloth.
Ricardo predicted that each country would eventually recognize these facts and stop
attempting to make the product that was more costly to generate. Indeed, as time went
on, England stopped producing wine, and Portugal stopped manufacturing cloth. Both
countries saw that it was to their advantage to stop their efforts at producing these items
at home and, instead, to trade with each other in order to acquire them.
A contemporary example: China’s comparative advantage with the United States is in
the form of cheap labor. Chinese workers produce simple consumer goods at a much
lower opportunity cost. The United States’ comparative advantage is in specialized,
capital-intensive labor. American workers produce sophisticated goods or investment
opportunities at lower opportunity costs. Specializing and trading along these lines
benefits each.

The theory of comparative advantage helps to explain why protectionism is typically

unsuccessful. Adherents to this analytical approach believe that countries engaged in
international trade will have already worked toward finding partners with comparative
advantages. If a country removes itself from an international trade agreement, if a
government imposes tariffs, and so on, it may produce a local benefit in the form of new
jobs and industry. However, this is not a long-term solution to a trade problem.
Eventually, that country will be at a disadvantage relative to its neighbors: countries that
were already better able to produce these items at a lower opportunity cost.

Diversity of Skills
People learn their comparative advantages through wages. This drives people into
those jobs they are comparatively best at. If a skilled mathematician earns more as an
engineer than as a teacher, he and everyone he trades with is better off when he
practices engineering. Wider gaps in opportunity costs allow for higher levels of value
production by organizing labor more efficiently. The greater the diversity in people and
their skills, the greater the opportunity for beneficial trade through comparative
advantage.

As an example (adapted from Farnam Street), consider a famous athlete like Michael
Jordan. As a renowned basketball and baseball star, Michael Jordan is an exceptional
athlete whose physical abilities surpass those of most other individuals. Michael Jordan
would likely be able to, say, paint his house quickly, owing to his abilities as well as his
impressive height. Hypothetically, say that Michael Jordan could paint his house in 8
hours. In those same 8 hours, though, he could also take part in the filming of a
television commercial which would earn him $50,000. By contrast, Jordan's neighbor
Joe could paint the house in 10 hours. In that same period of time he could work at a
fast food restaurant and earn $100.
In this example, Joe has the comparative advantage, even though Michael Jordan could
paint the house faster and better. The best trade would be for Michael Jordan to film a
television commercial and pay Joe to paint his house. So long as Michael Jordan makes
the expected $50,000 and Joe earns more than $100, the trade is a winner. Owing to
their diversity of skills, Michael Jordan and Joe would likely find this to be the best
arrangement for their mutual benefit.

Example:
What Is Apple's Competitive Advantage in Its Industry?

Apple Corp. manufactures and markets a variety of computers and consumer

electronics products, including smartphones, tablets and music players. The investment
analyst firm Market Realist identified brand strength, innovation, supply chain
management and premium pricing strategy as key factors in the company’s competitive
advantage.

Brand Strength
Apple was the world’s leading brand in 2017, ahead of Google, Coca-Cola and IBM,
according to annual rankings published by brand consultancy firm Interbrand. Brand
strength gives companies like Apple great visibility in the marketplace and helps build
consumer loyalty. The company’s strong branding, and the interrelationships between
its products, encourage customers who buy one Apple product to try another. Products
such as the iPhone, iPad and Mac share the same software and applications, and
operate in a similar way, making the Apple product a natural choice when customers
are considering another device.

Innovative Products
Apple has a long-established reputation for innovation and a commitment to developing
new products. The company developed the graphical user interface, first used in its own
computers, and, more recently, pioneered the iPod music player and introduced new
levels of performance for smartphones. A key competitive advantage for the company is
its ability to develop innovative products that share the same operating system, software
and applications. This minimizes the risk, timescale and costs of product development,
enabling the company to introduce a stream of new products and stay ahead of
competitors. Apple’s innovation strategy of developing products that complement each
other strengthens customer loyalty and helps build a barrier to competition, according to
the website Innovation Excellence.
Strong Integrated Supply Chain
An ecosystem of suppliers, developers and business partners provides Apple with a
strong competitive advantage. The company owns chip manufacturers, controls
manufacturing, follows extremely strict software standards and operates its own stores.
Deals with leading music and entertainment companies provide a vast source of media
for all the company’s products. It also has a community of more than 6 million
independent software developers creating applications for Apple products. This gives
Apple control over the entire process of product development, manufacturing and
marketing -- an advantage that competitors find difficult to match.

Premium Pricing Strategy

Apple sets premium prices for its products and minimizes discounts to wholesalers to
keep prices consistent across the market. The company aims to offer customers a high-
quality product with unique features and uses high prices to reinforce the perception of
added value and maintain profitability. The high-pricing strategy also sets a benchmark
for competitors, which must offer equivalent features to match Apple’s perceived value
without losing money.

2. OPPORTUNITY COST

What is 'Opportunity Cost'

Opportunity costs represent the benefits an individual, investor or business misses out
on when choosing one alternative over another. While financial reports do not show
opportunity cost, business owners can use it to make educated decisions when they
have multiple options before them. Because they are unseen by definition, opportunity
costs can be overlooked if one is not careful. By understanding the potential missed
opportunities one forgoes by choosing one investment over another, better decisions
can be made.

BREAKING DOWN 'Opportunity Cost'

When assessing the potential profitability of various investments, businesses look for
the option that is likely to yield the greatest return. Often, they can determine this by
looking at the expected rate of return for an investment vehicle. However, businesses
must also consider the opportunity cost of each option. Assume that, given a set
amount of money for investment, a business must choose between investing funds in
securities or using it to purchase new equipment. No matter which option the business
chooses, the potential profit it gives up by not investing in the other option is the
opportunity cost.

Formula for Calculating Opportunity Cost

The formula for calculating an opportunity cost is simply the difference between the
expected returns of each option:

Opportunity cost = return of most lucrative option not chosen - return of chosen option

Say option A in the above example is to invest in the stock market hoping to generate
capital gains returns. Option B is to reinvest the money back into a business expecting
that newer equipment will increase production efficiency, leading to lower operational
expenses and a higher profit margin. Assume the expected return on investment in the
stock market is 12 percent over the next year, and the company expects the equipment
update to generate a 10 percent return over the same period. The opportunity cost of
choosing the equipment over the stock market is (12 percent - 10 percent), which
equals 2 percentage points. In other words, by investing in the business, they forgo the
opportunity to earn the higher return.

Opportunity cost analysis also plays a crucial role in determining a business's capital
structure. While both debt and equity require expense to compensate lenders and
shareholders for the risk of investment, each also carries an opportunity cost. Funds
used to make payments on loans, for example, are not being invested in stocks or
bonds, which offer the potential for investment income. The company must decide if the
expansion made by the leveraging power of debt will generate greater profits than it
could make through investments.

Because opportunity cost is a forward-looking calculation, the actual rate of return for
both options is unknown. Assume the company in the above example foregoes new
equipment and invests in the stock market instead. If the selected securities decrease in
value, the company could end up losing money rather than enjoying the expected 12
percent return. For the sake of simplicity, assume the investment yields a return of 0
percent, meaning the company gets out exactly what it put in. The opportunity cost of
choosing this option is 10% - 0%, or 10%. It is equally possible that, had the company
chosen new equipment, there would be no effect on production efficiency, and profits
would remain stable. The opportunity cost of choosing this option is then 12
percent rather than the expected 2 percent.

It is important to compare investment options that have a similar risk. Comparing

a Treasury bill, which is virtually risk-free, to investment in a highly volatile stock can
cause a misleading calculation. Both options may have expected returns of 5 percent,
but the U.S. Government backs the rate of return of the T-bill, while there is no such
guarantee in the stock market. While the opportunity cost of either option is 0 percent,
the T-bill is the safer bet when you consider the relative risk of each investment.

Using Opportunity Costs in Our Daily Lives

When making big decisions like buying a home or starting a business, you will probably
scrupulously research the pros and cons of your financial decision, but most of our day-
to-day choices aren't made with a full understanding of the potential opportunity costs. If
they're cautious about a purchase, most people just look at their savings account and
check their balance before spending money. Mostly, we don't think about the things we
must give up when we make those decisions.

However, that kind of thinking could be dangerous. The problem lies when you never
look at what else you could do with your money or buy things blindly without considering
the lost opportunities. Buying takeout for lunch occasionally can be a wise decision,
especially if it gets you out of the office when your boss is throwing a fit. However,
buying one cheeseburger every day for the next 25 years could lead to several missed
opportunities. Aside from the potential health effects, investing that $4.50 on a burger
could add up to just over $52,000 in that time frame, assuming a very doable 5
percent rate of return.

This is just one simple example, but the core message holds true for a variety of
situations. From choosing whether to invest in "safe" treasury bonds or deciding to
attend a public college over a private one to get a degree, there are plenty of things to
consider when deciding in your personal-finance life.

While it may sound like overkill to think about opportunity costs every time you want to
buy a candy bar or go on vacation, it's an important tool to use to make the best use of
your money. Even clipping coupons versus going to the supermarket empty handed is
an example of an opportunity cost - unless the time used to search through and clip
coupons is better used working where more money could be earned than the savings
promised by the coupons. Opportunity costs are truly everywhere we look and occur
with every decision we make - big or small.

What is the Difference Between a Sunk Cost and an

Opportunity Cost?
The difference between a sunk cost and an opportunity cost is the difference between
money already spent and potential returns not earned on an investment because one
invested capital elsewhere. Buying 1,000 shares of company A at $10 a share, for
instance, represents a sunk cost of $10,000. This is the amount of money paid out to
make an investment and getting that money back requires liquidating stock at or above
the purchase price. A sunk cost could also refer to the initial outlay to purchase an
expensive piece of heavy equipment, which might be amortized over time, but which is
sunk in the sense that you won't be getting it back. An opportunity cost would be to buy
a piece of heavy equipment with an expected return on investment (ROI) of 5% or one
with an ROI of 4%.

Again, an opportunity cost describes the returns that one could have earned if he or she
invested the money in another instrument. Thus, while 1,000 shares in company A
might eventually sell for $12 a share, netting a profit of $2,000, during the same period,
company B rose in value from $10 a share to $15. In this scenario, investing $10,000 in
company A netted a yield of $2,000, while the same amount invested in company B
would have netted $5,000. The $3,000 difference is the opportunity cost of
choosing company A over company B.

The easiest way to remember the difference is to imagine sinking money into an
investment, which ties up the capital and deprives an investor of the opportunity to
make more money elsewhere. Investors must take both concepts into account when
deciding whether to hold or sell current investments. An investor has already sunk
money into investments, but if another investment promises greater returns, the
opportunity cost of holding the underperforming asset may rise to where the rational
investment option is to sell and invest in a more promising investment elsewhere.

What is the Difference Between Risk and Opportunity Cost?

In economics, risk describes the possibility that an investment's actual and projected
returns are different and that the investor looses some or all of the principle. Opportunity
cost concerns the possibility that the returns of a chosen investment are lower than the
returns of a forgone investment. The key difference is that risk compares the actual
performance of an investment against the projected performance of the same
investment, while opportunity cost compares the actual performance of an investment
against the actual performance of a different investment. Still, one could think of
opportunity costs in deciding between two risks - if investment A is risky but has an ROI
of 25% while investment B is far less risky but only has an ROI of 5%, even though
investment A may succeed, it may not. And if it fails, then the opportunity cost of going
with option B will be salient.

Example:

Opportunity cost, rock concerts, and grades: A Fable of the OC, by Mike
Munger on Econlib.

You get to the box office about midnight, but don’t sleep much because
it’s noisy. Finally, sleep does come. It only seems like a few minutes
later when the clank of the ticket window opening wakes you at 8:00
am. In the sunlight, you notice that there are way more people in line
than you thought. Thousands, in fact. You may not get tickets, even
after camping out… But you start thinking about opportunity cost,
the big OC. You recall from economics class that the OC is
about foregone alternatives. In other words, the cost of doing one
thing is all the other things you don’t get to do as a result…. I used this
fable (sort of—it was Bruce Springsteen then) as a test question in my
intermediate Microeconomics class at Dartmouth College….

3. PROFIT:
Profit, in economics, is an asset that an investor receives by investing after
deducting costs associated with that investment, including the opportunity
cost; is the difference between total revenue and total cost. Profit, in
accounting, is the difference between the selling price and the cost of
production. The difference between definition in two areas is the concept of
cost. In accounting, people are concerned only with the costs of money,
not including opportunity costs like in economics. In economics, in the
perfect competitive state, profit will be zero. This difference leads to two
concepts of profit: economic profit and accounting profit.

Economic profit is greater than zero when the average cost is less than the
marginal cost, which is less than the selling price. The economic return will
be zero when the average cost equals the marginal cost, which is equal to
the sale price. [1] Under perfect competition conditions (in the long run),
the economic return is usually zero. However, the accounting profit may be
greater than zero even under perfect competition.

An enterprise in the market that wants to maximize profits will choose the
output at which marginal revenue equals the marginal cost. That is, the
additional revenue when selling one unit of product is equal to the extra
cost of doing add a product unit. In the perfect competition edge, marginal
revenue equals the price. Even if the price is below the minimum average
cost, the profit is negative. At the marginal revenue point in marginal cost,
the firm loses the least.

CÁCH THỨC LỢI NHUẬN

There are four key areas that can help drive profitability. These are
reducing costs, increasing turnover, increasing productivity, and
increasing efficiency.

You can also expand into new market sectors, or develop new
products or services.

This guide explains how to assess your business' profitability,

deliver growth for your bottom line, and how to plan and manage
change.

2. Manage your costs

Close management of your costs can drive your profitability. Most

businesses can find some wastage to reduce, it's important not to cut
costs at the expense of the quality of your products and services.

Have you looked at your key cost areas?

 Your key cost areas to consider are:

 Suppliers - are you getting the best deal from suppliers? Can you negotiate
better terms or do you need to change supplier? Can you drive better deals
by consolidating your supplier base? Can you buy on a 'just in time' basis
to make more effective use of your working capital?
 Finance - do you need to review your finance facilities? - are they at the
most competitive terms available? Are you using any loans and overdrafts
effectively?
 Premises - have you examined whether you are getting the most out of
your space? Are there more efficient ways to use your premises? Could
you sublet some unused space?
 Production - have you assessed whether you can cut waste and lower the
costs of your materials. Check whether you can adapt your production
processes so they are more streamlined, using fewer working hours or
resources to cut labour costs.

Uncover real costs

Using activity-based costing is an effective way to find the real cost

of specific business activities. Activity-based costing shows you how
much it costs you to carry out a specific business function by
attributing proportions of all your costs - such as salaries, premises
or raw materials - to specific activities.

The initial analysis may take a little time but using activity-based
costing often shows up costs (and therefore potential efficiencies)
that you would not normally uncover using more traditional costing
methods.

3. Review your offer

Look carefully at what you offer, who you sell it to and at what price
and see if you can make improvements.

Pricing considerations

It's a good idea to review your pricing regularly. Changes in your

marketplace may mean that you can raise your prices without risking
sales. However, it's wise to test any price rises before you make them
permanent.

Find your best customers

It's not just your price list that affects your profitability - the type of
customers you're selling to can also make a big difference.
 Consider the Pareto principle (often known as the 80/20 rule) and how
it could apply to your business. In simple terms, applying the Pareto
principle suggests that around 80 per cent of your profit is gained
from 20 per cent of your products or services. The same percentage
of profit is often also gained from the same percentage of customers.

Focusing on your most profitable customers - even if it means letting

the less profitable ones go - could boost your profitability, so long as
it is handled carefully.

Can you sell more to your best customers?

You may also be able to sell more to your most profitable customers.
Consider the following opportunities:

 up-selling - selling them premium products that make a greater

contribution to your profit
 cross selling - analysing what they buy and offering complementary
products
 diversifying - identifying a need and developing new products and services
to meet them

4. Buy more effectively

One of the most obvious routes to increasing your profitability is to

buy more effectively. It makes sense to review your supplier base
regularly and see if you can buy the same raw materials more
cheaply or efficiently. However, try to ensure that you maintain
quality at the same time.

Get the best deal from your suppliers

Identifying your key areas of expenditure will show where you spend
most money.

Once you know where your money is going, shop around. Try
bargaining with your suppliers - ask if you can have price reductions
or discounts for early payment.

Consider using your status as a valued customer to agree long-term

contracts or realistic annual minimum spends with regular suppliers
to obtain a better price. You could also buy as part of a consortium
with other similar businesses. If you can't strike a better deal,
consider switching to other suppliers.
 Review the number of suppliers you use. Buying from too many can
be inefficient - it takes up more time and dilutes your buying power.
However, avoid placing all your business with one or two suppliers -
it could leave you very vulnerable if things go wrong.

Cut waste throughout the business

A review of common areas of waste could help you see how to

reduce them, for example:

 Can you cut your power costs, e.g. is all equipment turned off when it's not
being used?
 Are you getting the best deals from your power suppliers?
 Are you paying for unused services e.g. unused phone lines or
photocopiers?

Consider whether you're getting the best from your property. Your
premises are a large expense , so get the most from your investment
or rental agreement:

 Can you use your space more effectively by rearranging it?

 Could you sublet unused areas?
 Could you negotiate a lower rental if you agree to a longer contract?

5. Concentrate your sales efforts

There are two key strategies for boosting profitability through sales;
selling more to existing profitable customers and finding similar
customers to sell to.

Work with your best customers

You should know who your best customers are, what they buy and
when they buy it.

You can usually put your customers and the products or services
they buy into one of four categories:

 high sales and high profit

 high sales and low profit
 low sales and high profit
 low sales and low profit

It makes sense to encourage customers that provide high sales and

high profit. You can also significantly boost your profitability by
nurturing customers that provide high profit on low sales.
 If customers are providing low profit from high sales, you can maybe
revise pricing to generate more revenue from them. If customers are
generating both low sales and low profits, consider whether it's worth
your while continuing to do business with them.

Find new 'best' customers

Make a judgement on expanding your customer base by finding new

customers who have a similar profile to your existing profitable
customers.

If you are sure you have covered your existing market as much as
you can, consider moving into new markets.

6. Expand your market

Moving into new market areas can transform a business and, handled
correctly, can significantly increase your profitability. However,
expanding into new markets can be risky - and mistakes can prove
very expensive.

Do your research

Before you start, carefully research the potential opportunity. Can

you tailor or adapt existing products or services for new markets?
This can provide new revenue at minimal cost and is ideal for
boosting profit. For example, if you manufacture tools for the garden
market, are there any potential applications for the tools in the
construction industry?

Do you understand who your potential new customers are, why,

when and how they will buy the product or service and how much
they will pay for it?

You can also use social media to do research and gain alternative
insights, opinions and feedback from your customers.

Developing new products and services

If you're developing a new product or service for a new market, it's

good to carefully consider its viability. Key questions include:

 Do you have the skills and expertise in-house or will you have to buy them
in?
 Have you got the commitment and resources available to make the new
project work?
 Can you minimise the risk?
 Can you be sure there's a demand for the new product or service at a price
you can make a profit on?

Team up and reduce the risk

Rather than going it alone, partnerships and joint ventures can

provide you with increased security in establishing yourself
successfully in a new or expanded market.

7. Boost productivity

All businesses can minimise wastage costs and still remain

competitive.

Measurement

Measure your operational efficiency on an ongoing basis. Put

systems and processes in place that will enable you to get the most
from your resources.

For example, you could regularly monitor how many employee hours
it takes to perform specific tasks or provide services. If the time
increases, it indicates inefficiency - the quicker you eliminate this, the
more your profitability will benefit.

The commitment to managing productivity must come from the top to

be successful. Communicate your productivity targets and
measurements so staff feel they have something to aim at.

You can also consider introducing staff incentives to keep to targets -

but define them carefully so quality is not adversely affected by
increased speed of production.

Defining the key performance indicators (KPIs) that are most suitable
for your business would give you clear targets to aim for. They
should reflect your goals, be measurable and comparable and allow
for corrective action to keep your targets on track.

Streamline your processes

Stepping back on a regular basis and questioning whether there are

more efficient ways to reach your goals is no bad thing. For example,
you may always produce a particular type of product at a specific
time in the month. But would it ease your cashflow if you produced,
shipped and invoiced it earlier, or later, in the month?
 It's useful to get an idea about how comparable businesses approach
similar issues. This is known as benchmarking. Benchmarking can
be on a basic, like-for-like level - such as comparing energy costs
between similar businesses - or it can be more detailed, such as
sharing data and analysing production and stockholding patterns
with other businesses you trust.

The additional perspective that benchmarking offers can provide new

ideas and momentum to make your business more efficient.

When benchmarking, it is a good idea to focus on similar areas to the

key performance indicators (KPIs) you have already identified.
Although there are no standard templates you can use to benchmark
your business, you could take the following steps:

 Deciding on the areas of your business that you want to improve or

compare to others. You could do this through research techniques, such
as informal conversations with customers, employees, or suppliers, focus
groups, or marketing research, quantitative research, surveys and
questionnaires.
 Researching your business' processes and functions thoroughly and
calculate how you will measure potential improvement.
 Finding industries that have similar processes you want to introduce - if
you want to bring in an integrated IT system, you should find other
businesses that currently use these types of system.
 Locate the businesses that are profitable in the industries you are
interested in benchmarking - you can do this by consulting customers,
suppliers, or trade associations.
 Survey these companies for their measures and practices and identify
business process alternatives. If a business is reluctant to provide this
information, you may get it through trade associations or commercial
market reports.

8. Checklist: improving the profitability of your business

Improving your business' profitability can help you to reduce costs,

increase turnover and productivity, and help you to plan for change
and growth.

How you increase your business' profitability will depend on a

number of factors - such as the business sector you work in, the size
of your business, or its operating costs. However, you could review
these options:

 locating areas in your business that could be improved or made more

efficient - e.g. general business processes or administration
 using key performance indicators (KPIs) to analyse your strengths and
weaknesses - e.g. rising costs or falling sales
 assessing your general business costs - e.g. overheads, how discounted
deals with loyal customers affect your profits, how productive your staff
are
 reviewing your areas of business waste and reduce them - e.g. power
supply costs
 regularly reviewing the pricing of your products
 testing the prices of any products you review before making the changes
permanent
 improving your profitability through your best customers - use up-selling,
cross selling and diversifying techniques to improve your profit margins
 identifying areas of expenditure and limit these by bargaining with your
suppliers
 long-term deals with suppliers to negotiate a better price on products
 researching new opportunities in your business sector and identifying
where you could expand the market
 put monitoring systems and processes in place - e.g. benchmarking