A company should focus on increasing price of its products (All else being constant or not deteriorating) to generate maximum profitability!

The title of this post may not be readily intuitive at first. Marketing and sales managers might think if I reduce my production or variable costs the profits might go up a lot more than increasing price; or they might think if I can cut down on my company fixed costs (overhead costs that do not vary with the quantity of items sold), then my profitability might go up even higher. So, before you go and layoff a bunch of overhead folks such as accountants and sales operations or convert an office mortgage into a lower opex lease to save on fixed costs, you may want to read this post.
Profitability is basically in its simplest form can be defined as:
Profits = (Price-Var. Cost)*Qty Sold - Fixed Costs. I am going to assign symbols to these words so we can make things a bit easier to depict.

In symbols:
Pr = (P - VC)*Q - FC ................................Eq. A

Now let's assume a company's current profitability situation:

Microsoft sells a version of Surface Pro 3 tablets for $800, the price P per unit. Let us also assume the variable cost per unit (VC) incurred to manufacture a Surface Pro 3 at $560. In Q4, let's assume Microsoft sold 10000 Surface Pro 3 tablets. Also, let's assume that the fixed costs incurred per quarter is $2M associated with Surface Pro 3 business department. Let's now calculate the current profitability:

Per Eq. A
Pr (Current) = ($800 -  $560)*10,000 - $2,000,000 = $400,000

Also, Profit Margin (Current) = Profitability divided by Revenues expressed as a percentage = $400,000/($800*10,000) = $400K/$8M = 5%

Now, we are going to alter each of the variables (P, VC, Q, FC) by 1% (one variable at a time, keeping all other variables constant) to witness the effect on profitability. Can you guess which variable would increase the profitability the most? The results are summarized in the table below:

Table 1: Change in profitability when each variable is changed by 1%

If you had guessed Price as the variable that is most sensitive toward profitability, you get an A+. As we can see in Table 1, a 1% increase in price leads to a 20% increase in profit, whereas a 1% increase in quantity or a 1% drop in fixed costs get you only a 6% or 5% increase in profitability, respectively. Even a 1% drop in variable costs cannot match a 1% increase in price's effect on profitability.

Therefore the implications are clear: if every other variable in the profitability equation can be kept constant or at the lease not allowed to deteriorate, a company that can command a better price for its product in the market place wins the profitability medal. 

Increasing price, however, may not be as easy as you think it is. Price elasticity of demand and the reference price of competing and substitute products force boundary conditions on how much a price can change. But that's another topic and for another post.The intent of this post was to demonstrate why all else being equal, a company should focus on getting a better price for its products.