Improving Profit and Profitability

This lesson covers AQA A-Level Business topic 3.5.4 — methods for improving profit and profitability. You will learn the distinction between increasing total profit and improving profit margins, and explore strategies based on both cost reduction and revenue growth. Understanding how to evaluate these strategies in context is essential for achieving top marks.

---

Profit vs Profitability

It is essential to distinguish between these two terms:

Concept	Meaning	Measure
Profit	The absolute amount of money remaining after costs are deducted from revenue	Measured in £ (e.g., £500,000 operating profit)
Profitability	How efficiently a business converts revenue into profit	Measured as a ratio/percentage (e.g., 12% operating profit margin)

A business can increase profit without improving profitability. For example:

• Revenue rises from £1,000,000 to £1,500,000 (a 50% increase).
• Costs rise from £800,000 to £1,260,000 (a 57.5% increase).
• Profit rises from £200,000 to £240,000 (a 20% increase — good).
• But profit margin falls from 20% to 16% (profitability has worsened — costs are growing faster than revenue).