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Use These Strategies to Minimize Profit Loss

Nearly all CEO’s preoccupy themselves with maximizing profit. That’s the point of a business, after all—to make profit. Most of what you do in a given week is probably centered around generating sales.

But it’s just as important to put time and effort into minimizing profit loss. This is especially true if you have a successful product; the trick is to ensure your business never becomes obsolete. There are several strategies you can use to protect your business from loss of profit. Some of these strategies take longer to implement than others, so read on to discover how to integrate these tactics into your business plan as soon as possible.

Product Differentiation

Product differentiation may be one of the most effective ways to protect your business. It also may be one of the most difficult strategies to implement. Product differentiation is when your business:

  • Offers a product that is different than other products on the market
  • Offers a diverse line of products

Nearly every market is saturated with the same products, so the only way to rise above the pack is to offer something that has unique qualities about it. Let’s say you run a company that produces shoes—big whoop, there’s no shortage of shoe manufacturers out there. But, while other companies produce shoes with gel insoles, your company produces shoes with bouncy water-based insoles (unrealistic, perhaps, but you get the point). Consumers want to buy your shoe because it’s different and unique.

Product differentiation also means that your company creates a diverse line of products. In the case of your shoe company, product differentiation could mean that the business also produces socks and athletic gear, in addition to shoes. If one of your products tanks, you’ll have other products available that can generate revenue for your company (people don’t enjoy your water-sole shoes, but they love your wool socks). Products often suffer sudden drops in sales mostly due to social and economic conditions. A recession would likely reduce consumer spending. Or, public interest in a product might dissipate (as is often the case with “fad” products, like the fidget spinner).

Of course, it’s not easy devising, manufacturing, and advertising a new product. But the more products your company has in its arsenal, the more immune it will be to changing market conditions.

Cost Control

You can generate high profits, but that’s all for naught if your business has even higher costs. Cost control is the practice of reducing your company’s expenses so you can generate higher profit.

How you control costs, and which costs you try to reduce, depends entirely upon your company. First, you need to know how much each facet of your business costs—wages, manufacturing, advertising, office costs, etc. Then you need to figure out where you can cut expenses.

Is your office rent too high? Maybe it’s time to move to an office that’s cheaper. Do you spend too much on company outings? Reduce the number of company dinners and lunches. Is a certain department lacking productivity? You might have to reorganize that department’s workload. Dig into your company’s finances and find places to trim fat.

Also remember to make money where you can. For example, let’s say your company manages real estate and you’re trying to find a tenant to fill an unoccupied unit. It’s custom for tenants to move into units on the first of every month (for accounting reasons), but you’ve found a tenant who wants to move in a week earlier than the first. Should you let the tenant move in, or should you let the unit go unoccupied for another week?

This should be an obvious answer—you let the tenant move in and charge them prorated rent for the remaining days of the month. Nice! You’ve just made a week’s worth of extra money. Your business likely has plenty of opportunities to get cash in its pocket. There are plenty of consumers who wouldn’t buy your product unless it was cheaper, so don’t let their money slip away. Be prepared to offer discounts to keep their business, whether that be a group discount, educational discount, or bulk discount. Just set a discount limit so you don’t lose money on these sales.

Low Prices

Try and keep your product prices as low as possible. This hearkens back to one of the principal rules of capitalism: consumers tend to buy the products that are cheaper than competing products. When more consumers buy your product than another company’s product, you’ll gain a larger market share—another good way to protect your profits.

Whether you’re in the beginning stages of building a business, or whether you already have a booming product line or service, these three strategies—product differentiation, cost control, and low prices—will protect your company’s profits no matter how the market looks.

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One Comment

  1. It is no surprise that minimizing profit loss is a big challenge for most businesses. Product differentiation, cost control and keeping your product prices as low as possible are indeed the best ways to protect your business from loss of profit. Thank you for sharing these tips.

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