What is sales promotion?

A sales promotion is a marketing strategy in which a business uses a

temporary campaign or offer to increase interest or demand in its product or
service.

IMPORTANCE OF SALES PROMOTION

Sales promotion is an important component of a promotion campaigning

programme. It can be a specific tool of the marketing strategy of an enterprise.
Because of the increasing level of competition and costs of advertisement,
producers largely use this technique as a promotional tool.

Sale promotion techniques are not only useful to the producers and distributors,
but also are useful to consumers. The importance of sales promotion may be
grouped as follows:

a). Importance to Consumers.

b). Importance to Manufacturers/Producers.
c). Importance to Dealers/Middlemen.
d). Importance to Society & the nation.

A) IMPORTANCE TO CONSUMER

1. Sufficient product knowledge:-

Various consumer promotion methods such as demonstrations, training to use the

product, etc. give sufficient product’s knowledge to consumers with regard to
uses, operations, maintenance or upkeep of the product.
2. Availability of product at reduced prices

Sales promotional tools like prices-off deals, premium offers, discounts, etc.
reduce the price of the product when purchased on notified occasions.

3. Increase in consumers buying confidence:- Free samples offered under the

sales promotion programme give the potential consumers an opportunity to use
the goods and satisfy with the quality of product. This experience may give them
confidence to make a better decision towards the purchases of products.

4. Increases in the quantity of goods purchased : Stimulated by the various

promotional incentives like free goods, premium and coupons, etc. the buyers are
attracted towards larger purchases than their usual needs to avail the opportunity.

5. Higher slandered living The consumer also gets plenty of opportunities in using
the new , cheaper & durable items, to their satisfaction, which may help them to
maintain a higher standard of living.

6. Minimize exploitation : The consumer promotion programme gives sufficient

knowledge about product and substitutes available for a product, its quality and
price. As a result, a seller cannot be able to create a monopoly in his product and
exploit the consumers. This may be the reason for products like soaps. Detergent,
toothpastes, etc. the exploitation is not at all possible.

B) IMPORTANCE TO PRODUCER / MANUFACTURE

[Link] in sales :- sales promotion programme attracts the consumers &

stimulates them for larger purchases leading to increased sales.
2. Regular sales of seasonal products :-The offer of off-season discounts, price cut
etc. on seasonal products like fridge, coolers, fans, etc. are able to maintain
regular continuous sales of such items.

3. Improve effectiveness of advertisement and personal selling :The sales

promotion makes the advertisement more effective to push the sales. It is an
effective technique to minimize the dissatisfaction of customers that have been
created by retail selling.

4. Cooperation from middlemen :- The various promotional incentives offered to

the dealers help to achieve co-operations from them to sell the product on
priority basis and to maintain maximum stock with them.

5. Demand for product & services: The sales promotion techniques have proved
successfully introducing new products & services. By the supply of free samples,
the new product makes its place in the market.

6. Able to capture new market :- The sales promotion programme facilitates the
producer to capture new markets for his products easily. The markets of
plantation products have been successful in capturing the markets by the
distribution of free samples.

7. Increase in goodwill :- The repeated uses of sales promotion tools facilitate the
consumers to get a special identification of the product as well as of the producer.
The satisfaction that has been arrived to the consumers by continuous uses of the
products will gradually increase the goodwill of the firm.

8. Direct control :- Since the advertising media is controlled by advertising

agencies, the advertising costs are on a higher side. This has an adverse effect on
the sales and profits. But in the sales promotion programme, the producer has full
control over the promotional tools & therefore, can achieve maximum results at
minimum costs.

9. Effective steps to face the competition:- Larger sales, reduce production costs,
increase in profits, special identity and goodwill of the producer, etc. achieved
through sales promotion measures can help to face the competition more
effectively.

10. Improvement & new uses of the production: The sales promotion
programme invites suggestions from the consumers from time to time to know
about their change in need & performance. Accordingly, necessary improvements
or modifications are made in the product to satisfy the consumer need.

C) IMPORTANCE TO DEALERS/ MIDDLE MEN

1. Facilitates larger sales :- The dealers get advantages of sales promotional

techniques for increasing their sales. Sales promotion is a coordinating activity
between sales, advertising, research & public relations efforts & they reduce the
resistance at the point of sales.

2. More facilities & assistance :-

The producer, under the sales promotional programme, provides various facilities
& assistance to the middlemen, such as assistance to marketing research,
providing with display materials and managerial assistance, etc. for maintaining
regular stock for sales.
3. Direct relation with customers :-

A direct relationship between the dealers & the consumers are established
through the sales promotion techniques which will continue for a long time.

D) IMPORTANCE TO THE SOCIETY & THE NATION

The importance of sales promotion programme for the society & the nation can
be summarized as below :-
· Increase in the standard of living of the people.
· Increase in employment opportunities.
· Development and expansion of transport, communication, banking, insurance
and warehousing facilities.
· Increase in Gross National Product and per capita income.
· Creation of healthy competition in national and international trade, etc.
Sales promotion refers to non recurring and short-term sales activities other than
advertising and personal selling. Brand proliferation, trade pressures, growing
competition recession, quick returns, competent staff and attitudinal change are
the causes of growing popularity of sales promotion.

Ques: What are the sales promotional tools?

The two types of sales promotion tools consumers are as follows:

A. Consumer-oriented Promotion Tools

B. Trade-oriented Sales Promotion.

Sales promotion is generally defined as those marketing activities that provide

extra values or incentives to the sales force, the distributors, or the ultimate
consumer and can stimulate immediate sales. Sales pro­motion is generally broken
into two major categories—consumer-oriented and trade-oriented activities.

A. Consumer-oriented Promotion Tools:

The consumer-oriented promotion tools are aimed at increasing the sales to

existing consumers, and to attract new customers to the firms. It is also called pull
strategy. The consumer can take the benefit of promotion tools either from the
manufactures or from the dealer, or from both.

In general, some of the commonly used consumer-oriented promotion tools are as

follows:

1. Free samples:

In this case, small units of free samples are delivered door to door, sent through
direct mail, attached to another product, or given along with the purchase of
some other product (e.g., soaps, soft drinks, detergents or other items). Free
samples are normally provided during the introductory stage of the product.

2. Coupons:

This involves offering price reduction or saving to customers on the purchase of a

spe­cific product. The coupons may be mailed or enclosed along with other
products, or inserted in a magazine or newspaper advertisement.

3. Exchange scheme:

In this case, the customer exchanges the old product for a new one. The old
product’s exchange value is deducted from the price of the new product. This
sales promotion tool is used by several companies for consumer durables. For
instance, Philips came up with a five-in-one offer. The offer consisted of Philips TV,
two-in-one, iron, mixer-grinder, and rice cooker at an attractive price.

4. Discounts:

It refers to reduction in price on a particular item during a particular period. It is

common during festival season or during off-season. It is very stimulating
short-term sales, especially when the discount provided is genuine. For instance,
the Hawkins pressure cooker manufacturer announced an attractive price
reduction, up to Rs.150 off, on a new Hawkins in exchange for any old pressure
cooker. The advertisement specified that the offer was open only up to a
particular date.

5. Premium offers:

These can be extra quantities of the same product at the regular price. Premium
offers are used by several firms selling FMCG goods such as detergents, soaps and
food items. For instance, Colgate offered 125 g in a tube for the price of 100 g.

6. Personality promotions:

This type of promotion is used to attract the greater number of customers in a

store and to promote sale of a particular item. For instance, a famous sports
personality may be hired to provide autographs to customers visiting a sports
shop.

7. Installment sales:

In this case, consumers initially pay a smaller amount of the price and the bal­ance
amount in monthly installments over a period of time. Many consumer durables
such as refrigerators and cars are sold on installment basis. For example,
Washotex came up with a scheme to pay 20 per cent now and take home
Washotex washing machines. The consumers were offered the facility of paying
the balance in 24 equal monthly installments.

B. Trade-oriented Sales Promotion:

Trade-oriented sales promotion programmes are directed at the dealer network of

the company to motivate them to sell more of the company’s brand than other
brands. It is also known as push strategy, which is directed at the dealer network
so that they push the brand to the consumers by giving priority over other
competitor brands.

Some of the important trade-oriented promotion tools are as follows:

1. Cash bonuses:

It can be in the form of one extra case for every five cases ordered, cash discounts
or straight cash payments to encourage volume sales, product display, or in
support of a price reduction to customers.

2. Stock return:

Some firms take back partly or wholly the unsold stocks lying with the retailers,
and distribute it to other dealers, where there is a demand for such stocks.

3. Credit terms:

Special credit terms may provide to encourage bulk orders from retailers or
dealers.
4. Dealer conferences:

A firm may organize dealer conferences. The dealers may be given information
about the company’s performance, future plans, and so on. The dealers can also
provide valuable suggestions to the company at such conferences.

5. Dealer trophies:

Some firms may institute a special trophy to the highest-performing dealer in a

particular period of time. Along with the trophy, the dealer may get a special gift
such as a sponsored tour within or outside the country.

6. Push incentives:

It is a special incentive given to the dealer in the form of cash or in kind to push
and promote the sale of a product, especially a newly launched product.

The 4 stages of Technology Life Cycle:

1) Innovation Stage

The first and foremost stage of the Technology Life Cycle represents the
innovation or the birth of the new product, software, material or the processes
that are a result of the thorough research and development activities. In the R & D
department of the company, various new ideas are planned, developed, tested,
designed, and executed depending on the company resources and the current
needs and demands of the market. This stage is quite time consuming in nature as
the ideas need to be tested and verified considering the various internal and
external forces affecting the operations of the business.

2) Syndication Stage
The syndication stage of the Technology Life Cycle focuses on the
commercialization and demonstration of the new technology developed. The
products, processes or material with the optimal potential for success are utilized
on the immediate basis. In the research and development departments, many
innovations are put on hold and only a percentage of the same are utilized for
commercial purposes. The outcome of the same largely depends on the economic
factors along with the technical and non-technical factors.

3) Diffusion Stage

This stage focuses on the penetration of the new technology developed in the
market and the technology is widely accepted by its potential users owing to its
innovation and novel ideation. All this results in higher profits, enhanced brand
value, and elevated revenue generation for the company making it a market
leader. But it is important to take note that the demand and supply side of factors
jointly influence the rate of diffusion of the technology.

4) Substitution Stage

The substitution is the last and final stage of the Technology Life Cycle and
represents the decline in the use of the technology due to its replacement with
another technology that is far more better, novel, and innovative in nature
catering to the current needs and demands of the target market. The time frame
of the substitution stage depends on the dynamics of the market and the various
technical and non-technical factors influence the rate of the substitution of the
technology.
Example of the Technology Life Cycle

1) Nokia

In the early 2000’s the mobile brand Nokia was one of the best of the crops and
was much loved and adored by its loyal customers. The Symbian technology
used in its mobile phones was an instant hit with the customers and the brand
was the market leader for a very long time until the onset of IOS and Android
technologies by Apple and Samsung that were high on the levels of futuristic
ideation and innovation leading to the decline stage of Nokia and its
technologies.
5 Steps in Training Process/Phases Or Stages of Training

Step 1: Decide If Training is Needed

To compete effectively, firms must keep their employees well trained. The first
step in the training process is a basic one, to determine whether a problem can be
solved by training.
The first step in the training process is to determine Training [Link] overall
purpose of the assessment phase is to determine if training is needed and, if so, to
provide the information required to design the training program.

Step 2: Determine What Type of Training is Needed

The employees themselves can provide valuable information on the training they
need. Just ask them! They know what they need/want to make them better at
their [Link], regulatory considerations may require certain training in certain
industries and/or job [Link] the kind of training needed has been
determined, it is equally important to determine what training is not needed.

Step 3: Identifying Goals and Objectives

Once the employees’ training needs have been identified, employers can then
prepare for the training.

Clearly stated training objectives would help employers communicate what they
want their employees to do better or stop doing!

Learning objectives do not necessarily have to be written, but they should be clear
and thought out before the training begins to be as successful as possible.

Step 4: Implementing Training

Professionals should conduct training with knowledge and expertise in the given
subject area.

Nothing is worse than being in a classroom with an instructor who does not know
what they are supposed to teach! Use in-house, experienced talent, or an outside
professional best option.
The training should be presented so that its organization and meaning are clear to
employees. An effective training program allows employees to participate in the
training process and practice their skills and/or knowledge.

Step 5: Evaluation of the Training Program

One way to ensure that the training program accomplishes its goals is by
evaluating the training by both the trainees and the instructors.

Training should have, as one of its critical components, a method of measuring the
effectiveness of the training.

Evaluations of the training program will help employers or supervisors determine

the amount of learning achieved and whether or not an employee’s performance
has improved.

Importance of Training

Training is crucial for organizational development and success. It is fruitful to both

employers and employees of an organization. An employee will become more
efficient and productive if he is trained well.

Training is given on four basic grounds:

❖​New candidates who join an organization are given training. This training
familiarizes them with the organizational mission, vision, rules and
regulations and the working conditions.
❖​The existing employees are trained to refresh and enhance their knowledge.
❖​If any update and amendments take place in technology, training is given to
cope up with those changes. For instance, purchasing new equipment,
 changes in technique of production, computer implantment. The
employees are trained about the use of new equipment and work methods.
❖​When promotion and career growth becomes important. Training is given
so that employees are prepared to share the responsibilities of the higher
level job.
The benefits of training can be summed up as:

Improves morale of employees- Training helps the employee to get job security
and job satisfaction. The more satisfied the employee is and the greater his
morale, the more he will contribute to organizational success and the lesser will
be employee absenteeism and turnover.

Less supervision- A well trained employee will be well acquainted with the job
and will need less supervision. Thus, there will be less wastage of time and effort.

Fewer accidents- Errors are likely to occur if the employees lack knowledge and
skills required for doing a particular job. The more trained an employee is, the less
are the chances of committing accidents on the job and the more proficient the
employee becomes.

Chances of promotion- Employees acquire skills and efficiency during training.

They become more eligible for promotion. They become an asset for the
organization.

Increased productivity- Training improves efficiency and productivity of

employees. Well trained employees show both quantity and quality performance.
There is less wastage of time, money and resources if employees are properly
trained.

***What are the assumptions of X theory and Y theory?

In the 1960s, social psychologist Douglas McGregor developed two contrasting
theories that explained how managers' beliefs about what motivates their people
can affect their management style. He labeled these Theory X and Theory Y. These
theories continue to be important even today.
Theory X and Theory Y were first explained by McGregor in his book, "The Human
Side of Enterprise," and they refer to two styles of management – authoritarian
(Theory X) and participative (Theory Y).
If it is believed that team members dislike their work and have little motivation,
then, according to McGregor, it is likely to use an authoritarian style of
management. This approach is very "hands-on" and usually involves
micromanaging people's work to ensure that it gets done properly. McGregor
called this Theory X.
On the other hand, if it is believed that people take pride in their work and see it as
a challenge, then it will be more likely to adopt a participative management style.
Managers who use this approach trust their people to take ownership of their work
and do it effectively by themselves. McGregor called this Theory Y.
The approach that you take will have a significant impact on your ability to
motivate your team members. So, it's important to understand how your
perceptions of what motivates them can shape your management style.
Theory X
●​ Theory X managers tend to take a pessimistic view of their people, and
assume that they are naturally unmotivated and dislike work.
 ●​ Work in organizations that are managed like this can be repetitive, and
people are often motivated with a "carrot and stick" approach. Performance
appraisals and remuneration are usually based on tangible results, such as
sales figures or product output, and are used to control and "keep tabs" on
staff.

This style of management assumes that workers:

●​ Dislike their work.

●​ Avoid responsibility and need constant direction.
●​ Have to be controlled, forced and threatened to deliver work.
●​ Need to be supervised at every step.
●​ Have no incentive to work or ambition, and therefore need to be enticed by
rewards to achieve goals.
According to McGregor, organizations with a Theory X approach tend to have
several tiers of managers and supervisors to oversee and direct workers. Authority
is rarely delegated, and control remains firmly centralized.
Although Theory X management has largely fallen out of fashion in recent times,
big organizations may find that adopting it is unavoidable due to the sheer number
of people that they employ and the tight deadlines that they have to meet.
Theory Y managers have an optimistic opinion of their people, and they use a
decentralized, participative management style. This encourages a more
collaborative, trust-based relationship between managers and their team
members.
People have greater responsibility, and managers encourage them to develop their
skills and suggest improvements. Appraisals are regular but, unlike in Theory X
organizations, they are used to encourage open communication rather than to
control staff.
Theory Y organizations also give employees frequent opportunities for promotion.
This style of management assumes that workers are:
●​ Happy to work on their own initiative.
●​ More involved in decision making.
●​ Self-motivated to complete their tasks.
●​ Enjoy taking ownership of their work.
●​ Seek and accept responsibility, and need little direction.
●​ View work as fulfilling and challenging.
●​ Solve problems creatively and imaginatively.
Theory Y has become more popular among organizations. This reflects workers'
increasing desire for more meaningful careers that provide them with more than
just money.
It's also viewed by McGregor as superior to Theory X, which, he says, reduces
workers to "cogs in a machine," and likely demotivates people in the long term.
What Is Business Process Reengineering?
Business process reengineering (BPR) involves the examination and redesign of
business processes and workflows in your organization. A business process is a set
of related work activities that are performed by employees to achieve business
goals. Basically, a business process is the way we perform our work and business
process reengineering is the process of changing the way we do our work so we do
it better to accomplish the goals of our business.
Business Process Re-engineering, some characteristics are shared by writers on
BPR:
1. Process orientation: From structure to process

Business process orientation is trying to overcome some of the problems raised by

the Tayloristic view of structural specialization. In an international context, process
orientation changes the perspective from structural relationships between
headquarters and subsidiaries to the interaction processes between them.

2. Definition of business processes

A process is a specific arrangement of activities across time and place, with a

beginning and an end, with inputs and outputs. Business processes aim at
producing an output that supports a firm's targets and cuts across functions,
departments, and in some cases across the boundaries of an organization. Business
activities include informational, operational and managerial activities.
Re-engineering covers all three activities, not only operational activities.

3. The contents and boundaries of business processes

The contents and boundaries of business processes vary from firm to firm. The
experience of designers shows that a firm should differentiate its ongoing activities
by a range of ten to twenty business processes. Each company has its own set of
business processes. For instance, IBM uses eighteen business processes. Some
examples of these processes are: production, customer fulfillment, customer
feedback and development of hardware.
4. Business process owners and responsibility

Top management should take over the ownership and hence the responsibility for
the business processes to ensure their optimal management as well as their
continuous improvement. Line responsibility and process ownership form a matrix.

5. International business processes

Business processes are not international per se. The internationality of the firm
determines how many business processes have an international scope. Some
business processes are more likely to be international than others, for instance
global sourcing, global key account management, R&D, new product launch, or
manufacturing.

6. Customer orientation

BPR is radically customer-oriented. Process outputs should not only support the
firm's objectives, but must also satisfy customers' requirements. Customers should
be integrated into the redesign.

7. Re-engineering as a radical change of business process

Re-engineering of business processes is a radical break of process structures which

bears great risks. Hammer confessed that seventy per cent of all BPR projects in
which he was involved failed. However, the opportunities are also great. Whereas
programs of TQM aim at reaching improvements of 30 to 40 percent, Hammer and
Champy report cases of redesign where process times have been shortened by a
factor of 100.

8. Holistic view of processes instead of piecemeal engineering

BPR takes a holistic view of the network of parallel and serial processes. A holistic
view can overcome the piecemeal engineering of isolated parts of a business
process which often results in suboptimal solutions, particularly when the
preceding or following process steps fall under the responsibility of a foreign
subsidiary. However, designers lose this holistic view if they distinguish between
too many processes or too many process levels. IBM, which has the longest
experience with process re-organization, reduced their 140 subprocesses to the
above mentioned 18 business processes.

9. Top -down approach of Business Process Re-engineering

A holistic view harmonizes with a top down approach. Because of the broad, cross-
functional scope of BPR and the risks of radical change, top management should
initiate, control, and monitor the re-engineering. BPR follows a top-down approach
in contrast to quality improvement programs which follow a bottom-up approach.

10. Benchmarking of Business Process Re-engineering

Business processes are benchmarked. Continuous improvement and radical
innovation are designed to reduce cost and time, to increase customer satisfaction
and organizational flexibility. However, only a deep understanding of cause-effect
relationships will identify the true cost drivers and time wasters.

Compared to the ten characteristics of BPR, the interview partners had a different
perception and understanding of business processes.

Limitations of Business Process Re-engineering

The following are the limitations of business process reengineering:

No Guarantee of Success
Adopting BPR is no guarantee that a business will be successful. This is because the
success of a business depends on many macro and micro factors.
Costly Process
Business process reengineering is a costly and time-consuming affair. This is
because BPR involves making big changes at the strategic and operational levels. It
won’t be wrong to say that small companies may not be able to afford BPR.
Long-term Process
The results of BPR won’t be visible straight away, rather it is a long-term process.
Or, we can say that the result of BPR will show in the long term only. This again
makes BPR out of the reach of many companies who don’t have the patience and
money to carry ahead with BPR.

Requires Proper Training

Proper training needs to be given to employees to effectively implement BPR.
Employees must get training on when and how to implement the new processes. If
employees don’t get proper training, it could derail the whole plan.

It is very important to properly structure teams for various process reengineering

tasks. Each team must have at least one manager who is an expert in business
processes. Failure to formulate proper teams could make BPR less effective.

Unavailability of Resources
Businesses need to come up with the right resources at the right time to
implement BPR successfully. The resources could be human resources, funds,
process reengineering tools, data, and more. If one or more of these resources
aren’t available when needed for BPR, it could slow down the whole BPR process.

Excess Fear & Excitement

Fear of failure is never good for the outcome, and the same is the case with BPR as
well. If employees fear that the BPR could fail, then they may be hesitant to take
the risk that is needed for the successful BPR implementation.

There are chances that in excitement to benefit from BPR, management may
re-engineer too many processes.

Loss of Jobs
BPR could lead to the loss of jobs. Since BPR focuses on error-free processes, it may
replace humans with machines.
The above advantages and disadvantages of business process reengineering (BPR)
make it clear that BPR is not an easy process. Effectively implementing BPR
requires a lot of planning, as well as the willingness of top management and
support from employees. So, it is very important for a company going for BPR to
get itself familiar not just with the advantages but with the disadvantages of BPR as
well.

What Is Cost-Volume-Profit (CVP) Analysis?

CVP analysis is a technique for studying the relationship between cost, volume and
profit. Profit of an undertaking depends upon a large number of factors but the
most important from these factors are the cost of manufactures, volume of sales
and selling price of the product.
Cost-volume-profit (CVP) analysis is a method of cost accounting that looks at the
impact that varying levels of costs and volume have on operating profit.

●​ Cost-volume-profit (CVP) analysis is a way to find out how changes in

variable and fixed costs affect a firm's profit.
●​ Companies can use CVP to see how many units they need to sell to break
even (cover all costs) or reach a certain minimum profit margin.
●​ CVP analysis makes several assumptions, including that the sales price, fixed,
and variable costs per unit are constant.

Here are some assumptions about the use of CVP analysis in business.
 ●​ CVP analysis costs can be segregated into fixed and variable portions and
total fixed costs remain constant at all output levels.
●​ In CVP, cost linearity is preserved over the relevant range, and revenues are
constant per unit.
●​ A business has a constant product mix and produces only one kind of
product.
●​ An efficient manager or business owner tries to bring out the best results
from cost-volume-profit analysis, while steering clear of assumptions.

WHAT IS CAPITAL BUDGETING?

Capital Budgeting is defined as the process by which a business determines which

fixed asset purchases or project investments are acceptable and which are not.
Using this approach, each proposed investment is given a quantitative analysis,
allowing rational judgment to be made by the business owners.

Capital asset management requires a lot of money; therefore, before making such
investments, they must do capital budgeting to ensure that the investment will
procure profits for the company. The companies must undertake initiatives that
will lead to a growth in their profitability and also boost their shareholders’ or
investor’s wealth.

TOOLS OF CAPITAL BUDGETING

Capital budgeting is defined as the process used to determine whether capital

assets are worth investing in. Capital assets are generally only a small portion of a
company’s total assets, but they are usually long-term investments like new
equipment, facilities and software upgrades.

Internal Rate of Return

The internal rate of return calculation is used to determine whether a particular

investment is worthwhile by assessing the interest that should be yielded over the
course of a capital investment. It is determined by using a particular formula that
must be calculated through trial-and-error or by using the formula. As the internal
rate of return helps aid investors in measuring the profitability of their potential
investments, the ideal internal rate of return for a project should be greater than
the cost of capital required for the project, as it can be assumed that the project
will be a profitable one.

Net Present Value

Net present value (NPV) is used for the same purpose as the internal rate of
return, analyzing the projected returns for a potential investment or project. The
net present value represents the difference between the current value of money
flowing into the project and the current value of money being spent. The value
can be calculated as positive or negative, with a positive net present value
implying that the earnings generated by a project or investment will exceed the
expected costs of the venture and should be pursued.

Profitability Index

The profitability index is a capital budgeting tool designed to identify the

relationship between the cost of a proposed investment and the benefits that
could be produced if the venture was successful. The profitability index employs a
ratio that consists of the present value of future cash flows over the initial
investment. As this ratio increases beyond 1.0, the proposed investment becomes
more desirable to companies. When this ratio does not exceed 1.0, the
investment should be deferred, as the project’s present value is less than the
initial investment.

Accounting Rate of Return

The accounting rate of return is the projected return that an organization can
expect from a proposed capital investment. To discover the accounting rate of
return, finance professionals must divide the average profit by the initial
investment. The accounting rate of return is a useful metric for quickly calculating
the profitability of a company, and it is widely used for analyzing the success rates
of investments that feature multiple projects.

Payback Period

The payback period is a unique capital budgeting method. Specifically, the

payback period is a financial analytical tool that defines the length of time
necessary to earn back money that has been invested. A subcategory,
price-to-earnings growth payback period, is used to define the time required for a
company’s earnings to find equivalence with the stock price paid by investors. The
price-to-earnings growth payback period is also widely used to get a basic
understanding of how risky an investment opportunity may be. Understanding the
payback period of an investment limits the risks associated with taking on costly
projects.
Budget and Budgetary Control: Definitions

A budget is a financial plan for a corporation that covers a specific future period. It
is an expression of income and expenditures over a certain period. Budgets are
plans that cover all functional areas of a business for a specific future period.

A budget is a system that is related to plan and control. Therefore, budgets also
include budgetary control.

In a nutshell, a budget is concerned with policy framing whereas control is the

budgetary implementation of the policy.

In a narrow sense, budgetary control is a cost control technique wherein actual

cost is compared to budgeted cost, and thus is aimed at profit.

Definitions

The main definitions of the budget are summarized as follows:​

Brown and Howard: "The budget is a predetermined statement of management
policy during a given period which provides a standard for comparison with the
results actually achieved."​
George R. Terry: "A budget is an estimate of future needs arranged according to
an orderly basis covering some or all the activities of an enterprise for a definite
period of time."

Budgetary Control

Budgetary control does not merely involve the matching of estimated expenses to
actual expenses. In addition, it involves placing responsibility for failures.
The periodic checking up of income, costs, and expenses related to the
administration of the budget is known as budgetary control.

Concept of Entrepreneurship

Entrepreneurship is the ability and readiness to develop, organize and run a

business enterprise, along with any of its uncertainties in order to make a profit.
The most prominent example of entrepreneurship is the starting of new
businesses.

In economics, entrepreneurship connected with land, labour, natural resources

and capital can generate a profit. The entrepreneurial vision is defined by
discovery and risk-taking and is an indispensable part of a nation’s capacity to
succeed in an ever-changing and more competitive global marketplace.
Meaning of Entrepreneur

The entrepreneur is defined as someone who has the ability and desire to
establish, administer and succeed in a startup venture along with risk entitled to
it, to make profits. The best example of entrepreneurship is the starting of a new
business venture. The entrepreneurs are often known as a source of new ideas or
innovators, and bring new ideas to the market by replacing old with a new
invention.

It can be classified into small or home business to multinational companies. In

economics, the profits that an entrepreneur makes is with a combination of land,
natural resources, labour and capital.

In a nutshell, anyone who has the will and determination to start a new company
and deals with all the risks that go with it can become an Entrepreneur.

Job enrichment definition

Job enrichment is a strategy used to motivate employees by giving them

increased responsibility and variety in their jobs. The idea is to allow employees
to have more control over their work. By doing so, one can tap into their natural
desire to do a good job and contribute to the overall goals of the company.

In the past, employers believed that money was the biggest motivator, and
employees were encouraged to work harder by offering them a salary or wage
increase. Although this is true to an extent (as we all have bills to pay), many
employers are now realizing that there are other less costly methods that can
yield equally effective results.

People like to feel valued, challenged, and appreciated.

Job enrichment involves creating meaningful roles through feedback,

encouragement, communication, and autonomy. Managers who focus on job
enrichment focus on creating jobs with meaning. The aim is to create a healthy
work environment and employee work-life balance that intrinsically motivates
employees.

It’s about creating a work culture based on psychological safety at work where
managers encourage a growth mindset and employees strive to take on more
responsibility.

What Is Depreciation?

The term depreciation refers to an accounting method used to allocate the cost of
a tangible or physical asset over its useful life. Depreciation represents how much
of an asset's value has been used. It allows companies to earn revenue from the
assets they own by paying for them over a certain period of time.

Because companies don't have to account for them entirely in the year the assets
are purchased, the immediate cost of ownership is significantly reduced. Not
accounting for depreciation can greatly affect a company's profits. Companies can
also depreciate long-term assets for both tax and accounting purposes.
Depreciation can be compared with amortization, which accounts for the change
in value over time of intangible assets.

●​ Depreciation ties the cost of using a tangible asset with the benefit gained
over its useful life.
●​ There are many types of depreciation, including straight-line and various
forms of accelerated depreciation.
●​ Accumulated depreciation refers to the sum of all depreciation recorded on
an asset to a specific date.
●​ The carrying value of an asset on the balance sheet is its historical cost
minus all accumulated depreciation.
●​ The carrying value of an asset after all depreciation has been taken is
referred to as its salvage value.

What is break-even analysis?

Break-even analysis is a small-business accounting process for determining at

what point a company, or a new product or service, will be profitable. It’s a
financial calculation used to determine the number of products or services you
must sell to at least cover your production costs.

A break-even analysis will tell you exactly what you need to do in order to make
back your initial investment and begin turning a profit.

The break-even theory is based on the fact that there is a minimum product level
at which a venture neither makes profit nor loss.
 M.B. Ndaliman, An Economic Model for Break-even Analysis

For example, a break-even analysis could help you determine how many cellphone
cases you need to sell to cover your warehousing costs, or how many hours of
service you’ll have to bill to pay for your office space. Anything you sell beyond
your break-even point will add profit.

To fully understand break-even analysis for your business, you should be aware of
your fixed and variable costs.

●​ Fixed costs: expenses that stay the same no matter how much you sell.
 ●​ Variable costs: expenses that fluctuate up and down with production or
sales volume.

The break-even analysis is based on the following set of

assumptions:
(i) The total costs may be classified into fixed and variable costs. It ignores
semi-variable costs.

(ii) The cost and revenue functions remain linear.

(iii) The price of the product is assumed to be constant.

(iv) The volume of sales and volume of production are equal.

(v) The fixed costs remain constant over the volume under consideration.

(vi) It assumes a constant rate of increase in variable cost.

(vii) It assumes constant technology and no improvement in labour

efficiency.

(viii) The price of the product is assumed to be constant.

(ix) The factor price remains unaltered.

(x) Changes in input prices are ruled out.

(xi) In the case of multi-product firms, the product mix is stable.

Benefits of a break-even analysis

Many small and medium-sized businesses never perform any meaningful financial
analysis. They don’t know how many units they have to sell to see a return on
their capital.

Break-even analysis is a way to find out the minimum sales volume so that a
business does not suffer losses.
-Lis Sintha, Importance of Break-Even

A break-even point analysis is a powerful tool for planning and decision making,
and for highlighting critical information like costs, quantities sold, prices, and so
much more.

Price smarter

Finding your break-even point will help you understand how to price your
products better. A lot of psychology goes into effective pricing, but knowing how it
will affect your gross profit margins is just as important. You need to make sure
you can pay your bills.

Cover fixed costs

When most people think about pricing, they think about variable cost—that
is, how much their product costs to make. But in addition to variable costs,
you also need to cover your fixed costs, like insurance or web development
fees. Performing a break-even analysis helps you do that.

Catch missing expenses

It’s easy to forget about expenses when you’re thinking through a small
business idea. When you do a break-even analysis you have to lay out all
your financial commitments to figure out your break-even point. This will
limit the number of surprises down the road.

Set sales revenue targets

After completing a break-even analysis, you know exactly how many sales
you need to make to be profitable. This will help you set more concrete
sales goals for you and your team. When you have a clear number in mind,
it will be much easier to follow through.

Make smarter decisions

Entrepreneurs often make business decisions based on emotion. If they

feel good about a new venture, they go for it. How you feel is important, but
it’s not enough. Successful entrepreneurs make their decisions based on
facts. It will be a lot easier to make decisions when you’ve put in the work
and have useful data in front of you.

Limit financial strain

Doing a break-even analysis helps mitigate risk by showing you when to

avoid a business idea. It will help you avoid failures and limit the financial
toll that bad decisions can have on your business. Instead, you can be
realistic about the potential outcomes.

Fund your business

A break-even analysis is a key component of any business plan. It’s

usually a requirement if you want to take on investors or borrow money to
fund your business. You have to prove your plan is viable. More than that, if
the analysis looks good, you will be more comfortable taking on the burden
of financing.