How To Increase Profits in Capsim

Capsim profits determine your score!

A drop in your net profit means negative results on the scoreboard, while an increase in this value translates into a higher score. But what happens when you can’t grow your earnings to increase your profits?

Your company can get help from capsim experts with reputable services. Nevertheless, if you can’t afford to pay for professional guidance, our capstone simulation team ensures you are well taken care of by this exhaustive guide.

Let’s explore it.

Profits Role in Capsim Scoring System

What role do profits play in your capsim ranking?

The profit category examines the pace at which your company is creating wealth. The margins evaluate the percentage to get the actual value of profit. And since the industry is constantly growing, the profit required to gain 100 points increases annually.

Year 1: $6 million

Year 2: $8 million

Year 3: $10 million

Year 4: $12 million

Year 5: $16 million

Year 6: $21 million

Year 7: $27 million

Year 8: $35 million

With the above values, you can calculate the points for each year. Assuming, in our case, you earned a net profit of $3 million in Year 1, the points earned are calculated this way;

Points = Net Profit/Profit Required * 100

= $3M/$6M*100

= 50 points

Note that negative profits earn zero points.

What’s an Operating Profit Margin?

The operating profit margin computes the remaining revenue (after paying for your production and operation costs). These expenditures include material costs, employees’ wages, promotion and sales budget.

Typically presented as a ratio, the operating profit margin is calculated using the following formula:

Operating Margin = Operating Income/Net Sales

A high operating profit margin is essential for your capsim game as it indicates your company is performing well financially. It also helps your firm to pay for fixed costs and interest on debt borrowed, improving your financial position.

Suppose you have two companies; company A, which owns all its equipment, and Company B, which leases all its equipment. Company A has higher profitability as it’s not paying for lease or rental costs continuously.

On the other hand, company B will struggle to reach optimum profit margin as it’s constantly faced with operational expenses monthly or yearly, depending on the leaser they partner with.

So, how does the business professor determine the performance of a company?

Your instructor checks the profit margin changes in the long run. A steady increase in your profit margin shows that your company is earning more per dollar sales.

Capsim best Strategies to Increase Your Profit Margin

Tip 1. Downsize

Let’s face it, it’s not fun to downsize, even for real companies. However, downsizing comes with numerous benefits, as you can cut costs and boost your profitability as a company.

Depending on your industry demand and the competition in the simulation game, you can implement effective strategies such as Total Quality Management to reduce the working hours or negotiate labor terms to cut production costs while improving the quality of your new products.

Tip 2. Increase Sales

Increasing sales is every company’s goal as it grows its profit. You can boost your sales through different approaches, including

• Price Factor: Pricing may demand the implementation of strategies like the Broad Cost Leader. This strategy keeps your production cost down, helping your company produce products at lower prices than your competitors. Hence, it attracts more customers, resulting in more sales.

• Marketing: For strategies like the Niche Differentiator, you produce premium products with high prices targeting the customers that prefer high-end products. You can apply a competitive promotion and sales budget that will market your products effectively to help you sell more.

Tip 3. Own Equipment Instead of Renting

If possible, acquire your equipment to eliminate fixed monthly costs for leasing computers or machines. This will increase your operating profit margin, unlike when leasing or renting.

Tip 4. Eliminate Unnecessary Expenses

When participating in capsim, you must examine the elements contributing to your outgoing monthly expenses. If you notice any unnecessary cost, eliminate it to boost your subsequent profit margins.

Other Elements That Contribute To Your Capsim Score

It’s important to note that profit is not the only factor contributing to your score. Your instructor examines other elements to determine the performance of your company. Here are other target areas you should focus on if you want to get maximum results;

Margin

Margin points are obtained in three areas

1. Contribution Margin Percentage

2. Net Margin Percentage

3. Return on Sales

1. Contribution Margin Percentage

The contribution margin percentage goes up to 33 ⅓ points. Every product with a margin percentage above 30% receives points. Hence, if all your products possess a contribution margin percentage greater than 30%, you will receive 33 1/3 points.

2. Net Margin Percentage

The net margin percentage also has 33 ⅓ points. Unlike in the contribution margin percentage, here, products aim for 20% to gain points. So, you receive points for every product with above 20% net profit margin. And if all the products have above this percentage, you get 33 ⅓ points.

3. Return on Sales

Commonly known as ROS, Return on Sales is the percentage measure that measures how well your company can transform sales into profits. ROS = Net Profit/Total Sales.

Return on Sales assesses the whole company’s after-tax margins. When your ROS is 10% or above, you earn 33 ⅓ more points. If you have a negative ROS, you receive zero points.

And suppose you get a ROS between 1% and 10%; you get scaled points. For example, if you get 5% ROS, you will receive 16.65 more points.

Emergency Loans

Running a business can sometimes demand you get extra money to keep your departments operational. However, in capsim, you should keep your need for an emergency loan as low as possible. If you want to increase automation or production capacity it’s wise to utilize long term debt instead of taking an emergency loan.

Here is how emergency loans are used to rank capsim simulation

• You gain 100 points when you don’t have an emergency loan

• You receive 50 points when you get an emergency loan of $5 Million

• You obtain 20 more points with an emergency loan of $10 Million

Working Capital

The working capital measures your company’s reserves. You should balance the margins to ensure you don’t have too much or too little working capital. Here are the criteria used to allocate you points

• With a current ratio of above 2.0, you receive 50 points

• If your working capital can last between 30 to 90 days, you earn 50 points.

• If you have an emergency loan, you lose your working capital

Market Share

The capsim ranking process defers depending on the number of teams

1. For a game with 6 teams, you score 20 points for each team you defeat

2. If you are competing against 5 teams, you score 25 points for each team you beat

3. Suppose you have 4 teams in the game; you receive 33 points for every team you defeat

4. If your game has 3 teams, you score 50 points every time you beat another team

5. For a game with 2 teams, you score 100 points when you defeat the other team

The bigger the market share, the better for your business. Here are three main reasons why our capsim professionals recommend a high market share

• A high market share helps you make a sale your competitor has not made, weakening competition in the long run.

• A high market share helps your business break even, allowing you to utilize your total capacity. This implies high sales volume.

• You begin your company doing business in all segments. Any strategy you implement should generate average sales at a minimum. An effective strategy should generate a higher share in the target segments to cover those that you exit.

Customer Satisfaction

The customer satisfaction category examines your business performance from the customers’ point of view. Here are the four criteria that rank your products

1. Your products should sell 50,000 units in the year
2. Your products cannot stock out. Nevertheless, the stock-out requirement is waived if your business runs at maximum utilization.
3. The December customer survey score should be 30 or more points
4. Your inventory should be available on 31st December of the previous year.

How is the December Customer Survey Score calculated?

This score is developed through the 4 P’s of marketing, including:

• Product
• Promotion
• Price
• Place

Forecasting

This category examines your capacity to predict demand, and create the necessary inventory to meet it while not accumulating excessive stock reserve. Every product contributes to your forecasting points.

For a product to receive points, it should not be out of stock by December 31st or have an inventory above 120 units. To eliminate the stress on new products, start the year with a plant and begin making sales on January 1st.

In addition, if your production plant is running at maximum utilization, stock-out is overlooked. And although the teams should address this issue, there are some exceptions, for example, the industry-wide capacity shortage.

Product and Price

This category examines the product based on the customers’ buying criteria. Your company gets a perfect 100 score points for the following:

• The product price is below the expected range.
• When the product is at the ideal spot. This occurs once annually since segments move monthly.
• Your product should have an ideal age for the specific segment.
• MTBF that’s above the expected range

Financial Structure

This category assesses your company’s financial structure in terms of debt and equity relationships. Your instructor calculates leverage to assess your financial performance, usually, a ratio of assets to equity.

Wealth Creation

This category examines your ability to accumulate wealth as the management. It uses the following measures

• Cumulative profits – the sum of all your company’s profits.
• Market capitalization – the current value of the stock price times claims
• Cumulative free cash flow – the sum of all the free cash flows calculated from the day you begin managing the company.

Promotion

The promo budget creates awareness before the customers discover your product. In capsim simulation the customers that know your product will always consider it. Those that do not know it, half discover it while half don’t.

Your perfect product begins with score of 100 with 60% customers aware and 40% unaware. So, when the score falls, you will have half of the unaware lot 20% plus 60% giving you a total score of 80.

Productivity

Productivity examines the capacity of your workforce from the beginning of the simulation course. It applies three criteria

• Sales/employees: You receive 50 points for high sales volume per employee
• Turnover rate: If you get a higher than predicted turnover rate when the hr module is switched on, you lose points.
• Profit/employee: Whenever you record high profits per employee, you receive 50 points.

Depending on the historical results of the previous semester, you earn the points above the threshold. For example, if the previous sales are $80,000 and you earn $80,000 you will earn zero points. But if you earn $160,000 you will obtain 50 points.

Learn How To Increase Profits in Capsim!

Not sure how to grow your profits? Developing a strategy to boost your profits can be an uphill battle. Fortunately, you don’t have to throw in the towel after completing several rounds of capsim course; our experts are here to help you win.

Whether your company is experiencing negative profits or below-average sales, our team is here to help you boost your profit margins to improve your score!

In order to win in your Capsim you can also check our Guide on How to increase Leverage In Capsim.