Even though many companies rank high in profitability, few entrepreneurs consider this a failure metric.
One thing that will always be present in every industry is the constant battle between two types of people in business.
One is those who want to maximize their profits and another who desire growth.
What is “profitability” and why is it important for businesses?
Profitability means generating profits from the business’ operations.
The generated profits get circulated as working capital.
The business can generate a sustainable income and revenue from its activities.
It can be financially independent without relying on external sources such as loans or funding to operate.
Being profitable enables businesses to invest in other areas, such as research and development or expanding business operations.
It can be used to improve its existing products/services, adapt to new market trends, and adapt to change in general.
What is “growth” and why is it important for businesses?
The definition of growth is pretty simple.
It means increasing business activities by introducing new products/services;
Providing superior customer service to existing customers;
Opening new customer segments to target, etc.
It also means developing the business operations by increasing its value proposition,
This is possible by expanding business operations or improving existing products/services.
Read our recent article 10 Most Common Pitfalls when Growing Your Business
How to achieve a balance between profitability and growth in your business?
By introducing strategies that will allow you to achieve both profitability and growth
1) Profitability-focused strategies
A. Introduction of company policies that will enable your business to be profitable. This can be done by focusing on cost control, ensuring that proper sales are generated through effective marketing campaigns, etc.
B. Increase market share – at least 20%of your competitor’s market share – if possible. This will increase the revenue generated by your product/services.
C. Introducing an acquisition plan that can be profitable and sensible for the company’s growth. This is important because it will allow them to expand their market share, create a new income source (rental or royalties), and include other products under their umbrella.
2) Growth-focused strategies
A. Introduce new products/services to the market. This can be through launching an entirely new line of business or by expanding the existing product/service to other markets
B. Apply for an increase in the capital so you can invest in research and development, introduce superior equipment, etc.
C. To reach out to more customers, you need to have a good marketing strategy. A company will not grow without marketing efforts, so you can’t neglect this aspect.
If you follow the strategies outlined above, you’ll be able to get more from your business operations and lower the risk of being vulnerable to market changes.
The pros and cons of focusing on profitability or growth in your business
Focusing on profitability:
Pros
It is essential to ensure that you are profitable as a business, as this is one of the critical goals of any startup/business owner.
Cons:
It might lead to your competitors increasing their market share, making it harder for you to compete in the future.
Focusing on growth:
Pros:
This ensures that the business remains competitive, allowing them to introduce new products/services and expand business operations.
Cons:
It might lead to its operations becoming inefficient, as it will need to focus on growth before establishing itself.
Tips for achieving both profitability and growth in your business.
Read our recent blog The 5-Step Process to Writing a Business Plan
By following these tips, you will be able to achieve long term profitability and growth.
- Make sure that your marketing efforts are aligned with your business goals.
- Your marketing campaigns should not be focused on increasing awareness of your brand but rather on encouraging consumers to try out the new products/services, thus generating more revenue for the company.
- Offering superior customer service can also help your business achieve long-term growth and profitability.
- Ensure that every staff member is adequately trained to provide the best customer service possible.
- Ensure that you are not neglecting innovation.
- This is very important in improving existing products/services and introducing new ones, which will generate more revenue for your business.
- Don’t focus too much on profitability;
- Instead, make sure that you continue innovating and providing superior customer service.
- At the end of the day, if your products/services are not satisfying your target customers, they will look for them elsewhere.
At the end of the day, if your products/services are not satisfying your target customers, they will look for them elsewhere.
Bottom line
You cannot achieve growth without focusing on profitability;
You need to ensure that you are financially stable before expanding business operations or improving existing products/services.
If all factors are equal, most entrepreneurs will prioritize growth because the business will sustain its operations.
An increase in market share involves a lot of costs and risks, so not all companies can do this.
On the other hand, profitability is achievable if you have a good business plan and a sensible marketing strategy.
If you’re struggling with issues of profitability and growth in your business, you may want to consider consulting a business coach or hiring a professional consultant.
So, if you’re looking for ways to achieve growth but are struggling with profitability issues, our team at Pendleton Global can help.
Our years of experience in the business world have taught us what it takes to be successful, and we’re excited to share that knowledge with you.
Get in touch with us today to discuss your specific needs and how we can help you reach your goals.
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