By Eric Dickmann

April 22, 2019

Business Strategy, Profit Planning

Every business desires to make a desirable profit and secure good results; however, only a few business owners make it a measure of their success. Profit is the positive financial gain that your business makes after you've subtracted all your expenses and other unforeseen costs. Having a large profit gives you also the ability to grow and expand your business in the future. Creating profit is more than just making money; it is improving on the simplest factors of production and marketing to secure consistent output of good quality products or services. A company suffers a loss when the expenses are higher than its sales. A company is a contender for disaster if it has been losing profit for a ridiculously long time. Profit is essential to the longevity, growth, and safety of a business. Lenders won't lend money to companies that are not profitable and valuable to them and the customers. Investors and business partners look at profitability as a way to measure the ability of management to run the company and make it last for a more extended period. Making profit is the road to expansion because this allows you to expand your business to other locations, acquire new tools or equipment, and target a wider group of people. At times, companies with large profits are most likely to attract investors who want to be on the winning team.

The Most Profitable Companies in the World

The Importance of Profit to a Business 

Profit is important for business because it determines the company's stability in the next stages of the marketing process. Higher profit margins can equate to an increased budget to hire more competitive employees, invest in digital marketing to strengthen online presence, and a better business reputation. The value of stocks and shares increases as a company grows and becomes more profitable. Running a profitable company is one of the main goals for any business owner. In addition to the freedom that comes from being the person in charge, high profits provide an opportunity to earn more money than working for someone else. This also gives employers the ability to reward talented employees and keep them happy and satisfied with their position in the company. Dynasty Business Consulting lists the ten benefits of a high-profit margin to the business:

  • A high-profit margin is essential for the survival and expansion of your business
  • High profits fund growth 
  • Gives your company the ability too borrow money and attract investors
  • Grows your business' market value 
  • Measures the effectiveness of your management and overall system
  • Having high profits allow you to pay your debts faster
  • Builds a working capital
  • Allows you to hire better employees and consult top-of-the-line marketing experts 
  • Increases your company's bank savings
  • Enhances your ability to give back to the community
2020 Annual Sales and Profit of Full-Time Businesses

For most companies, profit is their key objective. This is because this is the lifeblood of every valuable organization. A business that continually fails to achieve the desired amount of profit to sustain their organization's expenses will eventually shut down because they don't have enough resources to operate and produce high-quality goods and services for their customers and investors. With good profit comes the company's ability to flourish and think of new ways to succeed and innovate in the industry. There are different kinds of profit, and each type gives the company leaders and stakeholders a valuable insight into the company's health. Indeed lists the three different types of profit:

  1. Gross Profit- This is the first and highest figure stated in the income statement. This type of profit helps the company identify how much money they have made after accounting for the direct costs of the goods or services produced. 
  2. Operating Profit- The operating profit is smaller than the gross profit stated in the income statement. This type of profit helps companies identify how much they would allot for labor, machinery, building costs, and other utilities
  3. Net Profit- This is the final calculation on the income statement. This is the bottom line that shows how healthy a business is by showing its revenue after subtracting all fixed costs.

Strategies for Increasing Profit

It is essential to consider how a company can increase profit. Patricia Sigmon noted that nearly two-thirds of small businesses either didn't make a profit last year or failed to increase their profit on the years before. Making profit may not turn out to be that easy; here are a few strategies business owners can use to cut costs, increase profits and improve their bottom lines.

2019 Top Sales and Profit Prriorities
  1. Decrease Costs by Improving Processes- The goal is to generate more sales while reducing expenses. One practical option is cross-selling. This is offering new goods and services that complement the currents products or services that you are selling. To encourage the engagement of new customers, you should consider offering discounts and irresistible promotions. These provide marketing opportunities and create a sense of urgency for buyers. On the flip side, you should learn how to evaluate internal processes for market opportunities to trim costs. Search for bottlenecks to find areas that are ripe for improvement. Sometimes simple changes allow you to recreate products more quickly and efficiently. Your business process must continue to evolve over time and not stagnate. At some point, you should step back and look for the most effective way to perform your strategies rather than just accepting how they are currently being done.
  2. Maximize Your Cash Flow- Develop a system to manage your cash flow. Carefully track and justify your expenses so that your business won't encounter losses. Offer maintenance contracts or an ongoing payment plan to your clients to stabilize cash flow. Use tools like subscriptions to build a stronger relationship with your customers and establish more stable streams of income.
  3. Carefully Monitor Spending- You should learn how to have full control in business by consistently monitoring your income and expenditure. According to GiveCampus's CEO Kestrel Linder, "You should know where every penny goes and what you get for it." Carefully track and justify your expense by creating a system that you and your team can freely navigate and access. Make sure to add data to your program and that all information is updated and synchronized. The key to business success is is transparency and automation. Automation is essential for business, in our interview with marketing mentor- Oren Greenberg on how marketing automation can help you in the changing landscape
  4. Raise the Marketing Bar- Stay visible and connected online. Give your business an instant presence through online networks, including Facebook, Twitter, YouTube, and LinkedIn. Measure all your marketing efforts and evaluate which ones are the most efficient and cost-effective. Understand that marketing is an expense; to be effective, you need a well-defined strategy and organized team to bring the company to achieve its goals. Marketing is complicated and expensive, and this is why you should make sure that you hire professionals who can help you build an effective and long-term strategy.
  5. Make Everyone a Salesperson- Every employee has the opportunity to spread your company's message and engage in sales generation. Motivate them to help in cost-cutting, marketing, and selling. Choose to reward employees who are making an extra effort to represent the company inside and outside the workplace.

Sometimes, seeing that your expenses outweigh your income is frustrating because despite your hard efforts, the balance sheet doesn't seem to add up, and your debt seemingly piles up at untimely rates. BusinessforSale shares to us other things you can do to make your business do better and be more profitable:

Percentage of American businesses opening and closing each year
  1. Put up your prices by at least 3% more and decrease direct costs - This method may be the most obvious way to increase your profit and sales. If you sell the usual number of products per day at this price tag, your turnover and profits will increase significantly. Your business should also seek to communicate with your suppliers and negotiate with them for the lowest price they could offer to you. With the increase in your price should come the improvement of your product or service's quality. Customers should see enough logical reason behind your sudden price increase.
  2. Sack underperforming suppliers, staff, and customers- Remove the people who can't help your business grow. Do not waste your efforts in communicating and supervising people who have no intention to help the organization grow and succeed. Sacking inefficient contributors will make you have a better working environment. 
  3. Get better at talking with other people- Communication is the key to your business' success. As a business leader, you have to express your message fluently to your team and customers. Most of the time, businesses fail because the communication is not there, and they work towards different objectives. According to BusinessforSale, improving by 10% percent in your sales funnel can give you up to 46% more customers.
  4. Rethink the way you present the business- Though your aim as a business owner is to gain more profit, you should always remember that your business is not only about profit. Your business is built to solve the different problems of people by helping them improve their way of life. Rethinking the way you present the company shall redefine your goals and be more straightforward with your marketing strategy. You should also note that it is your responsibility as a business leader to strengthen your team's morale by treating them as a family and uplifting them in times of need. 
  5. Learn how to prioritize- Take massive action and don't procrastinate. As much as possible, accomplish the things that take the most time to finish and have the nearest deadline. Once you've settled all the things you need to do for the day, you can proceed with the scheduled tasks for the next few days. Always put in mind that it is always crucial for you to stay ahead in business. 
  6. Get your customers to come back- Once your customers have purchased one of your products or services, urge them to avail of another good from your service line. Remember that your relationship with your customer does not end after a single sales transaction; it's a continuous process of following up and reaching out to your target market every now and then. Do not make it come to the point that your customers are getting bored of your good or services. Make your business offers as exciting and attractive as possible!
COVID 19 Impact on Small Businesses

Where Businesses Can Invest Their Profit 

According to the US Bureau of Labor Statistics (BLS), approximately 20% of new businesses fail during the first two years of opening, 45% during the first five years, and only 65% during the first ten years in the market. It is stunning to see that only 25% of new businesses make it to 15 years or more in the industry. Many small and medium-sized enterprises collapse because they become too overwhelmed with their first inflow of profit that they tend to spend it on luxury rather than invest it in their factors of production. You should budget your profit well and find means to make your business grow and maybe expand to other industries. Investopedia informs us that "too little financing" is one of the major reasons for business failure. Some businesses tend to be too unrealistic with their goals that they end up spending all their income and profit chasing some ambitious goal. Take one step at a time and know your limits at the moment. Trying to stretch your finances at the maximum may mean that your business may never get off the ground, not to mention, you'll still have a lot of cash to repay and a tarnished reputation. Be wise in investing your profit, and don't be too rush in your spending. If you want to purchase something, pause a little bit and reevaluate whether you really need that purchase or not. Entrepreneur Asia Pacific lists seven ways you should invest your company's first profit:

Main Obstacles  faced by Businesses in achieving Sales
  1. Business Improvement- Times changes, and so should your business. Don't make it come to the point that people are getting bored with your business' routine that they shift to your competitor to find explosive deals or better offers. You should choose to reinvest your company profit in your business' physical and internal improvements – infrastructure, equipment, streamlining business processes, or methods to improve customer experience. Remember that a healthy business can survive longer despite all the adversity and challenges along the way.  
  2. Invest in your team- People are the greatest investments. Even if you have the best machinery and tools in the world, if you don't have a trusted set of people to run or operate them, your physical equipment may turn out to be useless. As your company achieves a milestone, take the initiative to reward your employees through incentive packages, insurance benefits, or probably a fair pay raise or promotion. Investing in your team is a great way to show how much you appreciate them and desire to keep them for the long term
  3. Consider business coaching- Having a senior professional guiding you through your business decisions and giving you a better perspective on things can help you go a long way. Hiring a business coach for the long-term or even for a specific time can help executive leadership, investor communication, customer satisfaction, and handling internal conflicts. 
  4. Improve your SEO- If you want to earn more profit and establish a more substantial presence online, improve your SEO strategy. Hire a dedicated team of social media managers, content creators, and graphic designers who can create your website and build your blog site to make your goods or services visible to the millions of online viewers and customers. Search Engine Optimization (SEO) may be tricky, but it is a very effective way to make your voice heard, and presence felt anytime, anywhere.
  5. Invest in yourself- You are the leader of your organization. Your employees look up to you as their greatest motivator and innovator. Investing in yourself allows you to strengthen your mindset and gain a higher mastery of the subject matter. There are many instances where business owners are great concept makers but are extremely poor in managing people. Make it a challenge to strengthen your weak aspects and further improve on the fields you are good at. 
  6. Create a cash buffer- You never know what problem may arise. Aside from your investments, you should ensure that you're sitting on enough cash to handle any small or large-scale issues that may occur. Even if your insurance policies may cover disasters and catastrophes, it's always advisable to have extra resources set aside for times when you really need it. 
  7. Outsource your least favorite tasks- Don't do everything by yourself. The common problem with business owners is that they are "control freaks." Though they can do anything, time may not always be in their favor. You should learn how to delegate the tasks effectively and trust your team. Find someone qualified for a particular activity and hand over the job to them. List the things you think you can accomplish gracefully and give your least favorite tasks to the people who can execute them best.
How Employees should interact


Profit is indeed tempting but very essential to sustain a business. There may be circumstances that business owners get too overwhelmed with the money they are making for the first time. They forget that running is a continuous process of development, innovation, and expansion. It's a good idea to write down your goals and the corresponding strategies to achieve them. Teach yourself and your employees how to effectively implement your strategy and prioritize them in the order of importance. If you plan for profit from the beginning, you'll have an easier time getting there. Remember that profit is only one of your business goals and is never what your business is all about. It is only a means to serve your clients faster and effectively throughout the years to come. 

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Eric Dickmann

About the author

Eric Dickmann is the Founder / CMO of The Five Echelon Group, host of the weekly podcast "The Virtual CMO" and YouTube series "Work-Life" and a fractional CMO for a variety of small and midsize companies. An executive leader with over 30 years of experience in marketing, product development, and digital transformation, he has worked with large, global companies and small startups to develop and execute marketing strategies to bring innovative products to the market.

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