It’s a well-established fact that most small businesses collapse within a decade.
While there are many reasons for the high failure rate, it all boils down to one thing: profitability. If a business isn’t able to turn a profit, it’s only a matter of time before the curtain falls.
This begs the question: what can entrepreneurs like you do to build a profitable business?
Running a small business that makes strong profits might seem like a herculean task, but it’s doable. You just need to know what it takes to build a successful company and implement it. The business and finance industry is constantly evolving, go here for new technologies and economic shifts shaping the way companies operate and generate revenue.
In this article, we’re sharing some of the top essentials for business profitability. Read on!
A Commercially Viable Idea
Far too many businesses fail because there’s too small a market for their products and services. Without enough customers to buy your goods, the business won’t generate sufficient revenues.
When you’re planning to start a business, it’s essential to test the commercial viability of your product. Does it solve a problem that consumers in the market are having? If yes, how many of those consumers will be willing to buy it?
You can hire a market research firm to conduct a consumer survey. From the collected information, they can tell whether your eventual product will generate adequate demand. Or, you can distribute product samples to your close friends and family and ask them for their honest feedback.
Opening a business that sells a product that’s proven to be commercially viable makes the path to profitability clearer. As long as your sales numbers are looking great, you’ll certainly break even and start turning a profit.
However, keep in mind that how long the business takes to become profitable, even when the product has strong market demand, will depend on a number of factors, including the initial investment. If your startup capital was $1 million, for example, it can take several months or even years before the business generates more than that amount in revenues.
A Great Location
Although the eCommerce industry is rapidly expanding, brick-and-mortar businesses aren’t going anywhere. There are well over 1 million retail establishments in the U.S., a number that’s on a gradual increase as the country emerges from the COVID-19 pandemic.
If you own a retail store or are planning to open one, there are three words you must embrace: location, location, location.
The location of the store has a direct impact on its financial performance and eventual profitability. Ideally, you want the business to be located where there’s a high concentration of target customers. If your business is a senior care facility, for example, the ideal location would be populated with boomers.
In addition, the business should be easily accessible. This means there should be adequate parking space and security should be guaranteed.
Ultimately, a great location makes it possible for your business to receive high foot traffic. The higher the number of people coming to your premises, the more sales you’re likely to make. And what follows good sales? Profit!
Understand Your Target Market
How much do you know about your customers beyond where they’re located? If you don’t know much else, you’re going to face an uphill task building a profitable company.
Knowing your customers’ location will enable you to decide where to base the business, but there’s a lot more you need to know about them. Other details you need to know include:
- Age range
- Household Income
- Marital status
- Hobbies, interests, and lifestyle values
With a detailed customer profile, you’ll be better positioned to make a host of decisions that can influence the profitability of the business.
For example, you’ll be able to design more relevant marketing campaigns. If your target market primarily comprises members of Generation Z, you won’t bother with print marketing and advertising. Gen Zers spend most of their time online, so any marketing campaign that’s to be effective must be done on the digital platforms they love.
Another benefit is you’ll be able to craft your business’ messaging correctly. If your target market doesn’t have political affiliations, for instance, it won’t be a smart move to publicly associate the business with political groups. The move can offend customers whose political beliefs don’t align with yours.
At the end of the day, your business will make decisions that are customer-centered. This will increase their experience with your brand and make them more loyal. When you have a loyal customer base, you can count on them to make repeat purchases.
In a 2022 entrepreneur burnout survey, 60 percent of the 300 respondents said they have recently dealt with or were dealing with burnout.
Running a business isn’t a walk in the park. There are many big challenges along the way, which is why it’s not uncommon for business owners to burn out and even quit.
What will keep you going when the going gets tough? Passion!
When you’re passionate about something, you’ll find the energy to keep doing it even when it’s getting harder. In business, passion is the fuel that keeps you fired up, and it can be the one thing that determines the fate of your business.
You see, it can take several years for your business to break even and become profitable. This is when you’re most vulnerable to burnout, especially if the business struggles to make good sales. But with a deep passion for what you’re doing, you’ll likely keep grinding until the business achieves profitability.
You’re probably wondering where to find this kind of passion. It’s simple. Start by evaluating what you’re naturally excited about before starting a business.
For instance, if you love pets, you’d want to start a business in the pet industry. Perhaps you could launch a business that offers pet-sitting or grooming services. This way, even when business is shaky, you’ll be motivated to come to work and spend time with the pets you love.
A Great Team
Although the vast majority of small businesses have no employees, at some point, you’ll need to make a few hires. It’s impossible to achieve business growth without expanding your workforce.
However, hiring workers to help you doesn’t necessarily mean your business will grow or make more profits. In fact, poor recruitment practices can crush your business. Labor is a big expense, so if the business isn’t making enough money, you may not be able to meet your operating expenses.
The secret is to build a great team.
When you have employees who not only have the right qualifications for their jobs but also are a good culture fit, organizational productivity will improve. And when you’re meeting or even beating your productivity targets, the effect will be felt on your bottom line.
In other words, a great team makes it easier for you to build a profitable business. You won’t spend a good chunk of your time on HR duties like firing and hiring. Plus, considering the high cost of replacing an employee, you can see how having a great team will save your company lots of money.
A Supportive Mentor or Coach
Even with a great team and a deep entrepreneurial passion, there’s no guarantee you’ll build a profitable business. First-time business owners have a particularly challenging time getting their enterprises off the ground.
So, what’s the remedy?
This is where having a mentor, business coach, or consultant comes in handy. Ideally, this is an experienced entrepreneur who has walked your path at least a couple of times. They know what you’re going through and have the ability to guide you through the challenges.
A good number of entrepreneurs shy away from reaching out to coaching or consulting businesses because they don’t believe it’s worth it. After all, what’s the point of paying somebody for a service that doesn’t have a guaranteed outcome?
It’s true that coaching may end up not being directly helpful in your quest to build a profitable business. Your business can still fail even when you have a team of the world’s best coaches at your disposal.
However, what a coach or mentor will give you is a different perspective. Sometimes, all you need to do is look at an issue differently, and you’ll find an effective solution.
You Can Build a Profitable Business
The primary goal of every entrepreneur is to build a profitable business. Making profits is easier said than done, though. There are so many business challenges to defeat right from the first day.
That being said, making your business successful isn’t an impossible mission. It usually takes a combination of several factors, such as the ones fleshed above, to conquer the odds and make wild profits.
Good luck, and browse our blog for more tips and advice on how to run a business.