The Short and Long-Term Strategies
What is the difference between profits and profitability?
When a company earns profits it is said to earn more sales revenue over the cost of operations. This just means that it earns more than it spends. Profitability, however measures how well a company invests back into itself with the intention of seeing long-term profits.
What areas do you need to invest in to be profitable?
This question demands you to see beyond your business today and to begin to think strategically.
Thinking Strategically
One area a company could invest in; that will ensure profitability, is in their employees. In this example a company can provide continual education, free health benefits, or free breakfast, lunch, and dinner for those staying late. This type of investment will ensure that employees will stick around and work hard. Another area of investment maybe in it's marketing approach. A company may see potential in the use of social media for company branding; many companies are doing this today. A third investment maybe in creating a different product line or subsidiary that can assist the company in its goal to diversify, so it can be financially stable during tough economic conditions. And yet another one could be an investment in your own database or existing customer base; research into the desires of your customers could make all the difference in being profitable for years to come.
Let me ask the question again, just in case you missed it: What areas do you need to invest in to be more profitable?
A Little That Says A Lot
There are a million and one areas you can invest in, just think strategically. I think both profits and profitability are quite important in measuring the ongoing health of a company. Although a company needs to sustain itself long-term by making good decisions it also needs to sustain itself today. I think a good question we as future business professionals need to ask is how do I balance these two? and what specifically do I need to focus on for long-term sustainability? We should also be able to locate key indicators. Key indicators are those things you can look at that will give you a good idea of how the business is doing.
The Power of Information:
Think about an organization and how it operates and learn to gravitate toward the information that is going to give you a perspective on how a company is using it's resources and how it is earning an immediate profit.
Re-framing:
A profitable company needs to focus on it's investments, which means that executives should be asking, with every purchasing decision, what is the long-term consequence of my purchase/investment? Also learn to identify investments geared toward developing a long-term competitive advantage.
What Business Investments Are You Making?
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