The sales of your company are 100. Thousands, millions, billions, whatever you like. If it’s a small company, imagine $100,000. If it’s a global multinational, imagine $100 Billion. The firm has financial trouble, and they have asked you to increase profitability by 4%.
The Selling, General, and Administrative expenses, including payroll, rent, and other expenses, are about 16% of sales. It varies by company. At McDonald’s, it’s 23% and at Apple 6%. On average is 16%. Out of that, payroll is one-half or 8%.
To increase profitability by 4%, would you fire ½ of the entire team or increase prices by 4%? The financial impact is the same.
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