Real Reasons Your Business Can’t Make Profits

By BankBazaar | March 23, 2018

Is your business down in the dumps? It’s time you start looking for the reasons why. We’ll help you do it. Read on.

Real Reasons Your Business Can't Make Profits

Are you tired of looking at those revenue reports of your company? Don’t see much progress there? Hang on! Before you give up on those dreams and give up on those hopes of further expanding your business, you need to read this. We have the solution to your problems and dilemmas.

If you’re running a business and can’t seem to reach those profit figures, there’s probably something wrong somewhere. No, it isn’t just your calculations. Instead of blaming it on others, it’s time you start looking for the real reasons. Still clueless about what’s going wrong? Don’t worry! We’re here to help you dig deeper.

No matter what your company’s vision and mission are, breaking even and making profits needs to be on your priority list. If you’ve taken a Business Loan, you need to make enough to pay it back, don’t you?

Didn’t take a loan? Borrowed money from your relatives instead? You still need to pay them back, right? To manage all these expenses, your business needs to at least meet the minimum profit targets (unless you’re already a millionaire with a lot of money to spare).

Additional Reading: How To Get A Business Loan

Here are some possible reasons your business isn’t doing as well as it probably should be:

  • The Fault In Your Pricing

If your profit reports look worse than the ending of a tragic, romantic movie, poor pricing could be a possible reason. Before getting into any kind of business, the first thing you need to do is price your product/service right. It’s not all about using random numbers to slap on those price tags. You really need to do some math. Don’t worry! It isn’t as complicated as it sounds. There are a couple of factors that you need to keep in mind while deciding your pricing strategy.

One of the primary factors here is keeping a close eye on your competitors. You need to constantly be aware of what they are up to. It means keeping a close watch on everything, right from where they are sourcing their raw materials to the final selling price of their products.

The second important factor, of course, is the demand. Depending on the market and the demand for your product, you can play with the pricing. If you’re the only leading company dealing in this particular product in your area, you could take the liberty of increasing the price a little. But if you deal in something that is commonly available and you aren’t the only one offering that product, you might want to give competitive pricing a thought. It’s all about keeping price elasticity in mind.

The third important factor that you need to keep in mind is the total cost of manufacture. This includes considering the prices of the raw materials involved, the cost of transportation and all those minute things that are often ignored. You need to break even, right? For that, you need to have a clear idea of the total manufacturing cost. Take all the fixed and variable costs into account. Fixed costs include basic expenses like the electricity bill of the manufacturing plant. Variable costs, on the other hand, can vary with the level of production and sales.

Once you have all these factors clear in your mind, you can never go wrong with that crucial pricing decision.

Additional Reading: Gender Pricing 101

  • Too Many Unnecessary Expenses

No matter how successful your business is, you always need to keep an eye on your overhead expenses. There are chances that you’re spending unnecessarily on certain things without realising it. This, dear friend, needs to stop!

If your business is already struggling to meet profit targets, you must focus on saving every chance you get. No matter how small it seems, it can make a huge difference. Your office space, for instance. Do you really need a super swanky office?

If that office rent is hurting your pocket, maybe you need to consider moving to a smaller space. Swanky offices, overly expensive machinery and gadgets; you can do without them all. At least see where you can cut costs.

If all these factors aren’t adding a significant value to your final product, there’s no point spending a bomb on them, right?

Additional Reading: Warning Signs That Your Business Is Headed For Trouble

  • Ongoing Costs Hitting The Roof?

Here’s the tricky part about expenses—they are unavoidable. If you don’t plan them well enough, they can drill a big hole in your pocket and wreck your monthly budget. You need to work a bit on the budgeting part and see where you are losing money.

Like every other business, your company will have a couple of variable costs as well. Well, you can’t avoid them, but you sure can find alternatives and reduce the overall costs. These variable costs include everything, right from what you’re spending on your staff to what you’re paying vendors.

Loopholes are likely to be present at every stage. What you really need to do is take a closer look at your monthly expenses and see what’s going off track. Unless you locate the real problem areas, you can never fix them. So, the trick lies in keeping a close watch on the ongoing costs. As soon as you see a red flag, you need to address it as soon as possible.

Additional Reading: 5 Ways to Raise Money for Your Business

  • Hidden Costs, Where Art Thou?

If you think getting your budget in place is the only thing required to keep your business running smoothly, you are wrong! There’s something else that’s usually hidden from your sight. Something that can instantly destroy your budget.

Yes, we are talking about hidden costs. These could also be seen as unforeseen expenses. For instance, maybe something untoward happens and you immediately need some free cash. In that situation, you can’t just sit back and relax. It’s when you need to act.

It might not be a significantly big expense, but a couple of these expenses together are enough to wreck your dream of a profitable business. Don’t worry! We know there’s no way you can avoid such unplanned expenses. But there sure are ways to be prepared to face such situations.

For instance, you could open a Recurring Deposit now, collect some money there and later convert it into a Fixed Deposit. This way, in case of an emergency, you can just break this deposit and recover your business from a possible loss. This way, you don’t have to spend your profits on repair work costs. Sounds like a great plan, doesn’t it? You follow this and nobody gets hurt; neither you nor your company’s profit margins.

Additional Reading: Fixed Deposit Interest Rates

  • Cut-throat Competition

There’s a good chance that you already have a set of well-established competitors in the market. Dealing with them could be a little difficult if you don’t know how to play your cards right.

First of all, you need to see what your competitors are up to. Once you have a clear idea, you need to start working on developing your USP (Unique Selling Proposition).

It basically stands for the unique property of your product/service that differentiates it from the rest of the key players. It’s a rule of thumb that you need to be unique (or at least different) to survive cut-throat competition.

Put yourself in the shoes of your customers. Think about what you’d like to see in your product. Something that makes it stand apart from the rest. Price, quality, overall experience; it all has to be different and worth remembering. It’s all about brand recall, you see.

Even if you need to hire a marketing expert to help you with the advertising bit; do it. It might sound like an expensive affair now but will prove to be extremely beneficial for your business. If you don’t want to spend more and hire someone, do it yourself. It isn’t that difficult to figure things out.

Once you identify the USP of your product, you just need to position it right in the market. Target the right set of people and use the right marketing channels to get your message through. Oh, another thing. Your marketing message needs to be loud and clear.

Additional Reading: How To Raise Money For Your Business

  • No Market Awareness

When was the last time you actually researched to find out the latest market trends? If you have to think about this question, you may have a problem. As a businessperson, you need to be constantly aware of the latest market trends. You need to know what works and what doesn’t. You also need to know about the latest trends to inculcate them in your marketing strategies. This will also help you price your product right.

If your target audience has no clue about your existence, you can’t really expect to make huge profits, can you? Get out there; be seen and heard. That’s the only way to establish your presence in the market and leave a lasting impression in the minds of your customers. The good news here is that tools like marketing and advertising can help you in this mission.

Additional Reading: 5 New Trends Likely To Change The Way You Bank

Do any of these sound familiar? Have you faced any of these issues while running your business? In that case, you really need to start working on each of these individually and find solutions. Not being able to generate enough profits can turn out to be a big problem for your business in the long run.

It’s better to fix the problem during the initial stages of your business to avoid a chaotic situation later. If you find a fix to all of the above-mentioned problems, more than half of your worries will disappear and you’ll definitely see that profit curve rising.

Need more help on money management? We’re just a few clicks away!

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Category: Money Management

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