Regardless of the industry you’re in, how long you’ve been in business, or how big your company is, your business should be profit-oriented.
The simple fact is, if your business isn’t making money, it’s losing money.
That’s why it’s essential to know what the profit motive is and how it works, so you can build a more profitable business!
Profit motive definition
Profit motive is the incentive to earn net financial gains by undertaking any sort of business activity. That applies to companies as well as individuals, whether they’re buying, selling, or taking part in any other sort of economic endeavor.
For small businesses specifically, profit motive can often be the primary driving force behind activities such as operational cost reduction, developing innovative ideas, coming up with new pricing strategies, taking tactical risks, or even completely overhauling the business plan.
In short: Profit motive is the goal of increasing profit for your business – something every business owner should be aiming for!
To some, the profit motive definition may sound like a selfish enterprise for a business to be focused solely on. But the fact is that many (if not most) of the great inventions over the past few centuries were made in an effort to earn a profit. That includes the invention of advanced medical technology, computers and smartphones, credit cards, nearly every home appliance, the automobile, and even the lightbulb!
Without the profit motive, our world would be a very different place from what we know it to be today.
If your business isn’t profit-oriented yet, now is the time to consider making the profit motive a key component of your business plan.
Using the profit motive to increase revenue
The profit motive is a natural driver for increasing your business’s revenues. When it comes to making changes to your business, the profit motive helps to simplify the decision-making process for you by essentially eliminating those ideas that don’t have a high likelihood of generating a profit.
For example, investing in renovating your physical storefront may be something you want to do and something that could potentially impact your sales, but if most of your business is conducted online then an expensive renovation might not be a profitable project for your business to undertake. On the other hand, if you took that money and invested it in improving your e-commerce advertising strategy, that project could stand a better chance of earning a net gain for your business.
In all likelihood, you’re likely already doing everything you can to spend the least amount of money and make the most earnings for your business. That’s the profit motive in action!
What some owners aren’t aware of is that the effort to increase your business’s profits actually makes an impact that goes beyond your own enterprise. On a broader scale, the profit motive works to influence the market’s prices, sometimes driving prices up sometimes driving them down – which, in turn, affects the decisions you make for your business. This is the classic economic model of supply and demand.
Let’s say, for example, you run a business that sells furniture and it costs $10 to purchase raw materials and another $10 to manufacture a dresser. That means the cost of production for each dresser is $20. The profit motive would dictate that you need to sell each dresser for more than $20 in order to optimize the return on your investment.
An important detail is that, even if your business is profit-oriented, you won’t be able to earn a net gain unless there are customers who are willing to pay more than $20 for a dresser. In other words, there must be a demand for your products/services in order for your business to successfully use the profit motive.The #profit motive acts as a shaper of the market and is also shaped by the market. Pay close attention to levels of #supplyanddemand so that your business can stay profit-oriented. Click To Tweet
If there’s already a large supply of dressers of similar quality offered for $15 by your competitors, the profit motive would incentivize you to find ways to bring your costs down in order to make more sales, make a larger profit, and stay ahead of your competition.
On the flip side, if you don’t have many competitors and dressers are in short supply, that would mean a higher demand for dressers. In that case, customers would possibly be willing to pay $30 or even more for a dresser, allowing you to remain profit-oriented, make better earnings, and still be providing a valuable product to people at a price they’ll find reasonable.
In short: The profit motive acts as a shaper of the market and is also shaped by the market. Pay close attention to levels of supply and demand so that your business can stay profit-oriented.
Profit motive for e-commerce businesses
While there’s just one profit motive definition that applies to both ‘offline’ businesses and online businesses, there are a few ways that the profit motive can play out differently for e-commerce businesses specifically.
How the profit motive can influence e-commerce business decisions:
- Reduce overhead costs and switch to a dropshipping model so you can stop paying for inventory storage
- Start minimizing returns and refunds by developing top-notch customer support (Roughly 70% of customers say they’d stop paying for a product or service if they had even one bad experience with customer support)
- Invest in optimizing your supply chain so you can streamline processes, plan for demand, and negotiate for better supplier rates
- Measure profit and expenses to understand/increase your profit margins and see how to keep your excess expenses at a bare minimum
- Expand into multi-channel selling to engage with omnichannel customers who spend 30% more when they make purchases on average
After using the BeProfit dashboard to clearly understand your store’s finances, you can decide whether an e-commerce business loan is the right way to take your store to new heights.
Make the most of your business
Being profit-oriented is crucial to running a successful business. After all, if you’re not in business to make money, what are you in business for?
Okay, to be fair, the profit motive shouldn’t be the only incentive that keeps you in business. You’ll have to prioritize other qualities such as customer satisfaction, environmental awareness, and other social causes – otherwise, you may find yourself having a hard time building a strong business.
There’s a balance to be struck and it’s okay if it takes some time before you get it right. Just be sure not to forget how powerful the profit motive is and the role it plays in making the most out of your business!