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Improving Business Profitability

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Improving Business Profitability

Northbank Bakes is an independent bakery in Leeds. It wants to improve profitability without damaging the quality of its products or losing loyal customers. Use the monthly figures below for Questions 1–6. Show your working for calculations and use evidence from the case when evaluating strategies.

Item

Current month

Details

Revenue

£48,000

Sales of bread, pastries and drinks

Variable costs

£21,600

Ingredients and packaging

Fixed costs

£18,000

Rent, business rates and other monthly overheads

Current monthly profit

Calculate from the figures above

Profit = revenue − total costs

Read the figures

Calculate, interpret and compare the bakery’s profitability.

1.Using Northbank Bakes’ monthly figures, calculate its total costs and monthly profit. Show your working.

2.Calculate Northbank Bakes’ profit margin as a percentage of revenue. Use profit margin = (profit ÷ revenue) × 100.

3.Which statement best explains why profit margin is useful to Northbank Bakes?

It shows the total cash held in the bakery’s bank account.
It shows the percentage of revenue kept as profit, allowing comparison between periods or businesses of different sizes.
It measures how many items the bakery sells each month.
It proves that the bakery’s prices are lower than competitors’ prices.

4.The owner negotiates a 10% reduction in variable costs, with revenue and fixed costs unchanged. Calculate the new monthly profit and the increase in profit.

5.A proposed price rise is forecast to increase revenue by 5%, but sales volume may fall. If costs stayed at their current level, calculate the forecast profit and profit margin.

Choose and evaluate a strategy

Consider how a change can affect costs, revenue and customer behaviour—not just the immediate calculation.

6.Northbank Bakes has two proposals: negotiate lower ingredient prices, or introduce a loyalty scheme to encourage repeat visits. Identify one likely benefit and one risk of each proposal.

7.The bakery is considering extending its opening hours. Explain why this may increase revenue but fail to improve profitability.

8.A nearby competitor cuts prices. State one possible effect on Northbank Bakes’ profitability and one response the bakery could consider without automatically matching the price cut.

9.Recommend whether Northbank Bakes should prioritise reducing ingredient costs or raising prices to improve profitability. Use the figures and discuss at least one benefit, one risk and a factor the owner should investigate before deciding.

10.Explain why improving profitability matters to a business, and give one reason why profit alone is not a complete measure of business success.