Human beings, since time immemorial, have formed unlimited wants, needs, and desires, driving them to look for things that would satisfy them. Then, what followed is the creation of a business. Entrepreneurial minds started to boom, and that started it all.
Nations’ economy gauges economy’s, and the measurement is the GDP or Gross Domestic Product and the GVA or Gross Value Added. Talking about economy GDP and GVA represents “the big picture,” which gives an overall economic status of a particular geography. Economic indicators also analyze whether financial markets get harmonious with economic fundamentals or if there is lagging in terms of the business involved. Now comes the money indicators that talks about the statistic of economic activity.
Business is the answer to people’s longing to satisfy their unlimited wants and needs. And to add up to their desires for material things that they can get or achieve. The motivation of an entrepreneurial mind is a business to answer people’s needs, including the fundamental wants, food, clothes, basic needs, and some comfort.
What comes next is the interest to earn some money for-profit and a money generator, an application or software to add funds or put money for the business to flourish. Business and profit come to hand and hand as this forms the connection for business in answering consumers’ wants and needs and other desires. And that is how Economics play that makes it very important in the economy equals the progress of the country at stake.
Profit Maximization Defined
Profit maximization by Wikipedia “ is a short or long run process by which a business firm determines the price, input, and output level that lead to the maximized profit.”Profit, in turn, is the financial benefit attained from the activity of business on top of the expenses, costs, and taxes to sustain what is involved. Money earned will now be at the discretion of the owner to keep the cash or reinvest into the business.
What is the main objective of a business when it comes to Profit Maximization? Business companies, mini, micro, or macro, is expecting to earn and grow profit where it put into its maximized level. It also includes stability where nothing will change on the level of output.
Prices Matter Most
Profit = Income (or Revenue) less Costs (or Expenses).This equation explains how Profit Maximization works for a company. Profit maximized is when the total income (higher is better) and the total costs ( lower is better) is in its largest.
In this phase, pricing matters as a businessman should create a win-win situation where consumers get their money’ worth and the business a healthy profit. There are several tips to analyze price trends in the market correctly; wherein budding entrepreneurs have to do is to allow time to find the most suitable for the product.
Limitations of Profit Maximization
Success in the market plays a significant role in business, for it creates an influence on buying consumers. PMO sometimes does a company some good but does terrible things for a consumer where price tagging included. Marketing boards boast of a much lower price and then sooner than expected raises product prices to maximize profits.
Listed below are the limitation of Profit Maximization.
- Long term goal – striving to earn profit at the expense of long time customers does not mean obtaining more benefit. Loyal customers get annoyed and allow competitors to come in and steal the business.
- Long – Term – dedicating most of the resources to answer the demand of a client, then it takes the risk of separating from long term clients.
- Minimum Cost Price – the process of maximization is increasing sales price to maximize profit with an effective cost of production.
Ignoring the Disadvantages
- Time Value in money – “more profit is better to offer.” In this case, time value ignored, so the patterns of cash flows suffer.
- Quality – Intangible benefits like quality, image, technical progress are the most problematic aspect of profit maximization. And the value of intangible assets for the business is not worth the overlook.
- Steam of cash flow – Fluctuating large firms in profit are risky, and the purpose of maximizing profit, this fact is ignored.
Profit Maximixation tips
Here are tips to maximize the product profit:
On gross profit margin
- Figure out Gross Profit Margin – Estimated figures are a No-no in business and overall and updated gross profit margins and set benchmarking data from your old reliable accountant.
- Analyze Profit Margin – Stop low selling lines and focus on products that sell good, doing this you can identify low margin/loss-making and profitable products
. To Maximize profits
- Increase prices – “My issues against mine” policy; interest of the entrepreneurs are more than the customers, and estimates are going up and down daily. In the process, losses in sales occur, but targetted customers who buy on value may be the best option.
- Review all prices – Refers to bulk customers; customers are less sensitive if they are not paying for the bill. (e.g.Central and LGU’s contract)
- No Discounting – this move creates death to many businesses because of the margin destroyed in the process
- Don’t compete on Price – “think out of the box” make your style different, be it in giving superior value, lessen monetary cost, or taking the extra mile to reach out to help.
KPI’s that matters for Profit Optimization
The four key performance indicators that include:
1) Revenue per visitor- average payment per visitor.
2) Conversion rate- the next best thing for not measuring money
3) Customer Acquisition Cost- (CAC) the objective is to make an excellent process to lessen expenses to blow up profits
4) Customer Lifetime Value- forecasting of the net profit from future customers.Evaluating and establishing client worth overtime
The costs of acquiring customers also tell how much money you put in your marketing budget. Ordinarily, revenue per visitor after conversion is relevant, for it gives you new and raw data on purchases made by customers.
Profit Optimization in its Simplest
The purpose of any business and financial management is Profit Maximization. In its most straightforward words, all roads lead to focus on maximizing profits, be it financing or financing. Every decision for the business needs evaluation in the light of benefit.