The basic accounting equation used to calculate gross profit is the total number of sales, times the difference in price versus cost for each unit sold. When the equation is broken down and analyzed, the implied meaning is there are four ways for a business owner to get profits to increase. They can either have a strategy to increase total sales, increase the price of the item being sold, reduce the cost of producing what is being sold, or a combined strategy doing all three. A mass marketing strategy to increase sales may be better than trying to achieve the lowest cost in the industry, because small business owners usually do not fare well with the competition in price wars. The best one for a small business to sell to a small niche where you can raise your margins significantly.
Read more: The Mathematics of Profit
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