How to increase the profitability of your company?

A company's profit changes when one of four things changes: the price it charges, how much it sells, its variable costs or its fixed costs. To increase profitability, you change one or more of those, and it helps to test each change on paper before you make it, because a change to one can affect another. A price rise, for example, only adds profit if it doesn't cost you more sales than it gains. The open textbook Principles of Accounting, Volume 2: Managerial Accounting from OpenStax, opened on October 30, 2026, calls this kind of test a sensitivity analysis.

This page doesn't promise any result; how a change works out depends on your business. For measuring profitability, see how to calculate profit margin. For what each sale contributes, see what is contribution margin. For cutting fixed costs, see how to reduce business overhead.

The four levers

OpenStax's sensitivity analysis "shows what will happen if the sales price, units sold, variable cost per unit, or fixed costs change." Its cost definitions explain why the levers behave differently:

• Sales price: a higher price raises what each sale contributes, but only helps if sales don't fall by more than it gains.
• Units sold: more sales add profit when each sale brings in more than its variable cost.
• Variable cost: a cost "that varies in direct proportion to the level of activity within the business", such as a contractor paid per job or a payment processing fee. A change affects every sale.
• Fixed cost: an "unavoidable operating expense that does not change in total, regardless of the level of activity", such as rent or a software subscription. A change affects profit by the same amount whatever you sell.

What links them is the contribution margin, which OpenStax defines as "the amount by which a product's selling price exceeds its total variable cost per unit." Each sale's contribution goes first toward fixed costs; what's left after fixed costs are covered is operating income. For more, see what is contribution margin and how to calculate the break-even point.

How to test a change before you make it

1. Start from your current figures: price per sale, variable cost per sale, sales per month and fixed costs per month. Your income and expense records are the place to find them.
2. Change one lever at a time and recalculate operating income. OpenStax works through a price change, a variable cost change and a fixed cost change separately in the same way.
3. Then test the changes that come together, such as a price rise and the sales you might lose because of it.
4. Write down what you assumed. In its price example, OpenStax notes the result assumes "the higher sales price does not decrease the number of units sold."
5. Compare the results with your records afterward, so the next test starts from real figures.

Sample: testing four changes

The business and figures here are a sample, invented for this example.

A design studio sells a monthly support package for $500.00. Each package costs $150.00 in contractor time and payment fees (variable costs). It sells 40 packages a month and has fixed costs of $9,000.00 a month.

Now:

• Contribution per package: $500.00 − $150.00 = $350.00
• Total contribution: $350.00 × 40 = $14,000.00
• Operating income: $14,000.00 − $9,000.00 = $5,000.00

One lever at a time:

• Price up $25.00, still 40 packages: ($525.00 − $150.00) × 40 − $9,000.00 = $375.00 × 40 − $9,000.00 = $15,000.00 − $9,000.00 = $6,000.00
• Contractor rate up $10.00 a package: ($500.00 − $160.00) × 40 − $9,000.00 = $340.00 × 40 − $9,000.00 = $13,600.00 − $9,000.00 = $4,600.00
• One $300.00 software subscription canceled: $14,000.00 − $8,700.00 = $5,300.00

Two levers together:

• Price up $25.00, but 3 clients leave: $375.00 × 37 − $9,000.00 = $13,875.00 − $9,000.00 = $4,875.00, less than the $5,000.00 the studio earns now.

In this sample, the price rise adds profit only if fewer than 3 clients leave. With 2 leaving, it's $375.00 × 38 − $9,000.00 = $14,250.00 − $9,000.00 = $5,250.00. How clients would respond is the studio's own judgment; the arithmetic only shows where the line is.

Where Billed fits

Billed's financial reporting page says: "See how profitable your business is with Income vs Expense report." Its expense tracking page says an expense in Billed "records who you paid, when, how much and which category it belongs to, with the receipt attached to the same entry," and that "Billed's expense report can group your expenses by category." Those reports give you the current figures to start a test from.

Related Articles

• How to Calculate Profit Margin
• What Is Contribution Margin?
• How to Reduce Business Overhead
• How to Calculate the Break-Even Point
• How to Manage Business Finances as a Non-Accountant Owner
• How to Set Business Goals

Frequently Asked Questions

What changes a company's profit?

Four things: the sales price, the number of units sold, the variable cost per unit and the fixed costs. OpenStax calls checking how a change in any of them affects profit a sensitivity analysis.

Does raising prices increase profit?

Only if sales don't fall by more than the higher price gains. In the sample on this page, a $25.00 price rise added $1,000.00 a month with no lost clients, but left the studio $125.00 a month worse off if 3 of its 40 clients left.

What is the difference between fixed and variable costs?

OpenStax defines a variable cost as one "that varies in direct proportion to the level of activity within the business" and a fixed cost as an "unavoidable operating expense that does not change in total, regardless of the level of activity."

How do I know which change to make first?

Test each one with your own figures before you make it, one at a time and then together, and write down what you assumed. Ask your accountant to check the figures you start from.