Profits: What Are They? and How Do You Make Them?

Posted in Business, Finance on March 15th, 2021

In simple accounting terms, profit is just the difference between your expenditures and revenues. If you make more money than you spend keeping your business afloat, it’ll start making profits for you.

Profits, though, are actually more profound than that. While they are the difference between what you’re bringing in and what’s going out, they also have a social role. Profit is your net contribution to society.

Given that profits have such awful connotations, the idea that they could be contributing to everyone else sounds a little strange. But that’s precisely what’s happening when a company makes money.

Think about it. All companies have to use society’s resources to create value. Restaurants, for instance, have to use buildings, cooking equipment, and people’s time. A failing restaurant that isn’t making money is using more of society’s resources than the value it is adding. But one that’s succeeding is using less. In other words, it’s about using inputs efficiently to generate more output than it consumes. This difference is profit. It’s what society owes the owners of the business for the value they provide.

When viewed this way, you can see why the concept of profits is so important. Society actually needs companies to be profitable to save resources. Without those checks and balances in the system, you’d wind up in a situation where companies were wasting resources and everyone would get poorer.

Hiring a business accountant can help you work out how much money you’re making. But how do you actually make profits? Let’s take a look.

Find Out What Your Customers Value

Discovering what your customers value can be incredibly difficult. You might think that they want one thing, but it could turn out that they require something entirely different.Think about the mistakes companies made in the past. Kodak, for instance, believed that what customers really wanted was optical, film-based cameras. But it turned out that their market really just wanted a way to preserve memories. The camera was a mere tool for doing that. And so Kodak saw its profits plummet.

Learning what customers actually want is the first step towards genuine business wisdom. If you don’t know how to serve them, they won’t come back.

Be More Engaging

Perhaps you understand what customers want, but you’re not selling to them in the right way. In that case, you’ll need to learn how to be more engaging.

Usually, engagement simply means entering your customers’ shoes and thinking about the issues you solve in terms they understand. That means avoiding jargon where possible and communicating with customers on a more individualized basis. You’ll also want to start thinking more out of the box. What about bulk discounts or subscription models? Wouldn’t they suit your business better?

Track Your Progress

Fattening your margins is all about tracking your progress. You want to deliver the maximum amount of value to customers without draining society’s resources. That’s the mark of a true business genius. Keep tabs on your team and set times and dates when you’ll reevaluate your progress.

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