Ways to Increase Profit (AQA A Level Business): Revision Note
Syllabus Edition
First teaching 2026
First exams 2028
Exam code: 7132
Increasing revenue
A business can increase its profit in two ways
By increasing its revenue
By reducing its costs
It may also tackle both simultaneously
The impact of each approach depends on which type of profit the business is trying to improve
Gross profit is affected by revenue and the cost of sales (direct costs)
Operating profit is affected by gross profit and operating expenses (overheads)
Different strategies target different types of profit, and each comes with its own benefits and challenges
Ways to increase revenue
Increasing revenue improves both gross profit and operating profit
More money is coming in without necessarily increasing costs at the same rate
Raise the selling price
Charging more per unit directly increases revenue and, if costs remain unchanged, improves the gross profit margin
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Increase sales volume
Selling more units, through marketing investment, entering new markets or launching new products, increases total revenue and total contribution
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Improve the product mix
Rather than selling more of everything, a business can focus on selling a greater proportion of its products with a larger contribution per unit
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Case Study
Increasing revenue - Solaris Sunglasses
Solaris is a UK-based sunglasses brand that sells through its own website and selected independent retailers. After three years of steady but slow growth, the marketing team identified two opportunities to increase revenue without significantly raising costs.
First, Solaris repositioned its core range as a premium lifestyle brand, increasing average selling prices by 18%. Market research had shown that its target customers - adults aged 25 to 40 - were relatively price insensitive and associated higher prices with better quality. Sales volume fell slightly in the first month but recovered within a few months as the brand's reputation improved.
Second, Solaris launched a limited-edition range for the summer season, targeting customers who already owned a standard pair and wanted something different. The new range had a higher profit margin than the core products, improving the overall product mix.
Combined, the two strategies increased annual revenue by 26% and gross profit by 31% - profit rising faster than revenue because the higher-margin products made up a greater share of total sales.
Reducing costs
Cost reduction strategies need to be considered carefully
Cuts that are too deep can harm quality, staff morale or the customer experience, ultimately damaging revenue in the longer term
A business may choose to
Reduce the cost of sales to improve gross profit
Reduce operating expenses to improve operating profit
It may also tackle both simultaneously
Reducing cost of sales
Cost of sales is the direct cost of producing a product, including materials, components and direct labour
Reducing these improves gross profit directly
Source cheaper materials or suppliers
A business can shop around for lower-cost suppliers of raw materials or components, or renegotiate existing supply contracts to secure better prices
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Improve production efficiency and reduce waste
A business can review its production processes to identify and eliminate inefficiencies
For example, reducing the amount of raw material wasted during manufacturing, or streamlining the steps involved in producing each unit
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Achieve economies of scale
By producing at higher volumes, a business can reduce the cost per unit
For example, by qualifying for bulk purchasing discounts on materials or spreading fixed production costs across a greater number of units
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Reducing operating expenses
Operating expenses are the indirect costs of running the business
They include rent, utilities, salaries, marketing and administration costs
Reducing these improves operating profit without affecting gross profit
Cut overhead costs
A business can look for ways to reduce its fixed costs (overheads)
For example, by moving to smaller premises, negotiating a lower rent, reducing energy consumption or switching to cheaper suppliers of services such as insurance or IT support
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Reduce staffing costs
Wages and salaries are typically the largest operating expense for most businesses
A business can reduce its wage bill by making redundancies, reducing hours, freezing pay or replacing some roles with technology
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Use technology to automate processes
A business can invest in software, machinery or artificial intelligence to handle tasks previously carried out by people
Examples include processing orders, managing stock, handling customer enquiries or assembling products on a production line
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Case Study
Reducing costs - Clearview Window Cleaning
Clearview is a commercial window cleaning company serving office buildings across Birmingham. With energy costs and van running expenses rising sharply, the owner, Dan, set about reducing operating costs without cutting the quality of service his clients expected.
Dan replaced the company's four diesel vans with electric vehicles, funded through a bank loan. Fuel costs fell by 60% within the first year. He also introduced route-planning software that reduced the total distance driven each week by 22%, further cutting running costs and allowing the same number of jobs to be completed with fewer vehicle hours.
In the office, Dan switched from a paper-based booking system to cloud-based scheduling software, eliminating the need for a part-time administrator. The software also sent automated reminders to clients, reducing the number of missed appointments.
Total operating expenses fell by £28,000 in the first year. The upfront investment in vehicles and software meant operating profit dipped initially, but by year two Clearview was significantly more profitable than before the changes were made
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