Friday, June 27, 2008

What is the easiest way to make money?

I have been in business for only 2 years now but I have learned a very important lesson during the course of these two years. As a matter of fact, I have learned quite a few :-), but this is something that I felt was worth sharing. Well, I have learned the easiest way to make money in business. Interested to know that, dont you?

It is not a big secret and probably you know this already. Additionally if you have read a few books in economics you must definitely have come across this before. Well, the easiest way to make money in business is by saving money. A rupee saved is a rupee earned (or in other words - A dollar saved is a dollar earned). Adam Smith was so fond of this principle - parsimony, he called it fondly - that he must have mentioned it where ever he had talked about profits in his book.

An employed person always earns regular fixed income (unless he gets a hike/promotion/bonus/dividend) and he does not have to deal with the concept of profits. He can go ahead and spend whatever he want whenever he want as long as he can survive for a month with the money he gets.

As opposed to the above concept in the case of an employed person, a company earns a variable profit which is equal to the total income for the month minus the total expenses for the month. Unlike in an employees case where the salary is fixed, a company can increase its profits by increasing its income or reducing its expenses. Simple math isn't it.

Now increasing income depends on two factors - company's internal efforts and the result of this effort on external factors like public, media etc. On the other hand, reducing expenses is a totally internal effort. Of all factors related to a company, the company would have more control over something that is totally internal than on something that is partly internal and partly external. So reducing internal expenses has to be more easier than increasing income.

Now reducing expenses is not about reducing operations or scaling down operations. It is all about increasing efficiency and reducing wastage. This could be as simple as reusing and refilling pens or as complicated as optimizing delivery trips or purchase trips. It could be as simple as keeping things ordered in your drawer or as complex as indexing and ordering your registers. It could be as simple as reusing a pin/clip or as complicated as rewinding a burnt fan.

Even though an employed person does not have to worry 'per se' about his profits, he can always cut down on his expenses and increase his efficiency to be able to utilize his saved time and money on other worthwhile activities/products/services.

For a company, in addition to reducing expenses, an overall increase in increase efficiency will also indirectly increase the overall income of the company. So now you know how to make easy money. Go ahead and try it out in your company i.e. if you are lucky (or is it bold) enough to own your company.


  1. Very nicely written and helpful too :P

  2. It sounds simply enough, doesn’t it? Unfortunately, you’d be surprised at the number of individuals and companies that do not know increasing income depends on two factors. You and them!

  3. @shepherdfamilyvalues - It is unfortunate indeed.

  4. very useful post, better control your emotions rather than supressing and acheive the happiness in life.