Profit – The biggest motivator for any company’s existence. Rest of the things like serving the community etc. are just by products of this main goal. That brings us to the question of “What is profit?”
Profit = Revenue – Cost
Ha! Pretty simple. You could either increase your revenue or reduce the cost to generate profit. To increase the revenue you have to sell more. Increasing your sales would spread some of the fixed cost giving your more profit until you the reach the point of diminishing returns. After that, to increase sales you would have to incur proportional increase in direct cost. Of course, all these assume that you have not raised your prices to your customer.
The old way of calculating sales price was :
Sale Price = Cost+Profit.
You find out what your costs are and add the profit margin to set your price. That’s what Mannar is & Co. (M&C) has been doing for years. It worked well during the “Quota Raj”. There were no competitors to challenge your price. It was a seller’s market. Things have changed since the 90’s. Customers have more choice and hence, the new definition of Sale Price.
Sale Price = The amount the customer is willing to pay for the value you offer.
Now, M&C has no control over price. They have never had to face this in the past. Competitors are offering lower prices. To stay in the market, M&C lowered their price too to stay in the market. Do I have to tell you that they did not how to control their cost? That’s what led to the situation that they are in now –RED.
Not to know what to do, they sold the company to an aspiring entrepreneur Ezhil. Our rest of the blog will be how Ezhil is going to turn around his company. It's a mix of Lean and Love.