The Negative Impact of Increased Profit on your Business and How to fix it?

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The most common motivation for starting your own business is making money. Being an entrepreneur affords you the chance to earn unlimited income with the right business strategy

Some businesses run on the primary goal of making money, i.e., making a profit. This vision kicks off another purpose that is profit maximization. 

Most business owners don’t understand that profit should not be the primary purpose of your business. It is noteworthy that profit maximization is a bad practice that can also harm your business’s growth. 

How are increased profits affecting your business negatively?

There are many negative impacts of earning higher profits on your business, such as:

Fundamental Blinding

Multiple influencing factors dictate your business’s success, such as supply and demand, type of competitors in the market, etc. If your sole focus is on making more money rapidly, you will not focus on other fundamental factors that influence your business. Each business move you make will be a game of probabilities similar to making trades in the stock market. Your aim should be to develop a strategy that will enable you to maximize possibilities for yourself in the long term rather than make quick profits. 

For example, businesses ignore the need to use POS software because of the added expense. They don’t understand that POS software will make operations smoother with its inventory management, employee management, ticket management, etc. Subsequently, with smooth operations comes the probability of more customers. 

Short-Term Planning 

Focusing on profit is also a threat if it drives all the decisions to cater to short-term offers and fixes. You always need to strike a balance in your business. 

If you plan your decisions to play out in the long term, you will not generate enough capital to keep the business running until you reach your goal. Similarly, if you are only concerned about making a profit shortly, you will risk the entire business because of a lack of investments. 

Effect of motivation and passion

Business owners are motivated by several different factors, which is good. 

If you are motivated mainly by money, you will be disheartened every time your profitability is challenged. More importantly, you will lose sight of your goal and the energy necessary to resolve logical problems that might plague your business. 

Motivation and passion are essential for decision-making. It also helps stave off the adverse mental effects of continued exposure to unhealthy work conditions. 

In simpler words, if profitability and revenue are the only two forces guiding your business, you will lose motivation and eventually burn out. 

What should your focus be on?

If increasing your profit should not be your main focus, then what should be? 

Here are a few options that you can begin focusing on:

Stability

Stability is a crucial factor that requires you to focus on revenue to the extent that you become self-sustainable. The focus here is to make sure your business can run autonomously with smooth operations so that your cash reserves are not burnt out. 

If you have decent cash flows from sales and investment capital – you can achieve stability. To get to that point quickly, you can get POS software to manage internal workflow and cash flows. 

Reputation

The reputation of your business requires just as much attention as any other factor. You need to convince your target audience that your company is trustworthy. It will help improve customer retention that will allow you to move towards a prosperous future. 

It will also require sacrificing a chunk of your profitability in the short term. You might have to offer fairer prices by cutting your margins or spend more to make things right with your customer. 

Denis Gutsu, owner of First Response Phone Repair in Sacramento, CA shared his experience in a podcast, “A customer once came to my shop for an iPhone 7 screen replacement. My receptionist did not warn her about the IC chip issue, which is common and mentioned by Apple multiple times.

When the customer came back and saw that her cellphone was not working correctly, she got upset and threatened to give a bad review on Yelp. We immediately set to crisis management and fixed the phone for free to satisfy the customer and maintain our reputation. The customer kept coming back for more services. A little lost profit led to repeat business”. 

In businesses, values matter more than profits. 

Growth Avenues

Most businesses have multiple paths of growth to pursue. Finding them and preparing for them is far more important than revenue. Securing a place for your company in the future is more important than making immediate profits.

Competitive strengths

You will need to focus on perfecting your business goals to outcompete your competitors, specifically in a highly competitive field.

If your competitors are doing well, it will be unwise to focus on earning more profit instantly. In such a case, you need to undercut the competitor with more attractive products and services like lower rates. 

Internal core competencies

Lastly, you need to focus on forming your internal core competencies. Hire more people, get POS software, and train your staff before giving in to the temptation of maximizing profitability.

Final Word 

This article is not implying that you should not make money. Instead, these negative factors and alternatives are meant to explain that revenue generation should not be your business’s primary focus. 

As an aim, it should coexist with other long-term goals and should not be the only motivating force that keeps you going. Analyze your business and develop a strategy that helps maintain a balance. 

 

 

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