Reasons for low profits that hinder your business
Many companies have low profits, are on the verge of bankruptcy and are waiting for a miracle. It has even become the norm for some. This happens for years, sometimes even decades, but the miracle does not happen. Before the crisis, there was still extra money in the economy, which somehow saved the situation. But the crisis has come, there is less and less extra money, which means that the situation is becoming more and more difficult, and in order to get out of it, first of all, you need to find the reasons for low profits.
The situation will not resolve itself, so it’s time to take action. To start acting, you first need to find out the reason, or rather the reasons for low profits. There are many of them, but there are the main ones that make the maximum contribution to the decline in profits and, among other things, cause a number of other negative aspects. It is with their elimination that it is advisable to start everything.
… the first reason for low profits is subjective advertising, which is done without relying on the market and needs …
So, we begin to determine the reasons for low profits. The first of them is subjective advertising, which is done without relying on the market and needs, but based on the considerations of the specialist who deals with it. He himself decides what the advertisement should be. Analysis of the market and needs, application of technologies are not expected. In fact, the specialist makes advertising for himself, namely himself, meaning as the recipient of the advertising message.
Main source of problems
It is his psychological portrait and his needs that he considers as a base and focuses on them. Many do not react to such advertising or even react negatively. As a result, there are no sales, and the reputation deteriorates, which further aggravates the situation. In itself, advertising is the activation of implemented ideas. But not those that are embedded in the specialist, but those that are embedded in the consumer. In order to get an objective advertisement, they need to be studied and known.
Everything that does not lead to the activation of the idea is pseudo-advertising.
The second reason is pseudo-advertising. As mentioned above, real advertising is the activation of ideas embedded in buyers. If ideas are not active, a person does not need anything, he is in a state of complete satisfaction and happiness. In order for a person to want something, it is necessary to activate the embedded ideas in him, and this is done just the same with the help of advertising. Only when an idea is active in a person does he want to realize it, and for this he needs a product or service, which are ways to realize the idea.
Only the real activation of the idea is advertising. Everything that does not lead to the activation of the idea is pseudo-advertising. It is bad because it does not create a need, does not create a desire to buy a product or service, and thus does not sell. Pseudo advertising is a kind of casino slot machine that slowly but surely eats up your money. So it’s safe to say that many of the reasons for low profits are closely related to bad advertising.
The main reasons for low profits
The third reason is non-targeted advertising, which creates customers not for you, but for other companies, including competitors. With this approach, you spend your money on activating other people’s ideas, falling not into your target ideas, but into others’, as a result of which a demand is created for the goods and services of other companies. These companies get free customers and thereby increase their profits at your expense, while you either make little or no profit.
This is a very common situation and it is due to the fact that there is no preliminary research to establish which ideas need to be activated to create demand for your products and services. The situation is paradoxical, because it seems that ideas are being activated, but there are no sales, and in appearance, if you don’t know your target ideas, everything looks like real advertising, which complicates the search for reasons for low profits.
The fourth reason is unprincipled advertising
The fourth reason is unprincipled advertising. As mentioned above, advertising is the activation of an idea. One idea can only be activated by another idea. But very often attempts are made to activate the idea with thoughts. Everything is done correctly, according to technology, but instead of an idea, a thought is transmitted. It takes money and time to get it and put it into communication. Moreover, it is planned to return the money by creating needs and, accordingly, sales.
No market means no profit
But this does not happen, because thought cannot activate the idea and cannot create a consumer, it can only create a like-minded person. As a result, the company incurs costs that are not refundable. This accordingly reduces the overall profit at the expense of expenses, and also eats up the possible profit from sales. It turns out that the company suffers double damage. The problem is exacerbated when there is no enterprise marketing system.
Moreover, the money invested in your market remains yours forever, because it can be sold …
The fifth reason is the lack of a market. When there is a market, there are people pumped by a controlled idea. They are constantly at the ready, constantly waiting for you to activate the idea and offer the appropriate product for its implementation. In this case, a minimum activation and cash expenditure is enough to create a demand. But if there is no market of your own, then you have to create the maximum activation of the idea of a common market in order to look more attractive than competitors.
Creating maximum activation is very expensive and unreliable. At any moment, a competitor can activate more customers than you, and they will buy from him, and your money will be wasted. Moreover, the money invested in your market remains with you forever, because it can be sold, but investments in the general market go away forever, because you cannot sell it.
No idea means no profit
The sixth reason is the lack of correspondence between the product and the idea that it is able to implement. When there is a match, when a person sees that the product is exactly what he needs, which is able to realize the idea, he buys it very quickly and for the money you ask. In this case, you get 100% of the possible profit. If there is no match, then the buyer has many objections. Removing each objection is a decrease in profits, a waste of time and other resources.
Moreover, it is far from a fact that the sale will eventually take place, and even if it does, this does not guarantee a successful outcome. The buyer can pick up the product, use it, understand that he does not realize his idea and return it, and this is an additional cost of money and time. In general, there are dozens of times more problems that reduce profits from product mismatch with the idea than benefits.
The indicated reasons for low profits are very common, but the list is not limited to them. There is a seventh reason – the lack of a key to the product. Without it, goods are developed and produced that, by and large, are not them, they are soulless, idealess objects, in fact, just materials collected in a heap. The use of such an object does not lead to the implementation of the idea, which causes frustration from the purchase. As a result, they are not in demand and lie in warehouses for years.
How to find reasons for low profits
It is clear that all this is associated with significant costs, and hence with a decrease in profits. Huge sums of money are frozen in these facilities that do not work for the company. As a rule, if the number of objects in the assortment of a company reaches a critical level, then this is a direct, and moreover, a very long and very painful path to bankruptcy with wide open eyes, because the reason for what is happening is not even clear.
The eighth reason is the lack of a key to the market. Without it, goods are developed and produced that do not realize the idea of the market, do not meet the real needs of buyers. Moreover, they can be of very high quality, they can have an excellent design and an attractive price, but there is no correspondence to the idea of the market, therefore sales are weak and random.
A lot of money is spent on their creation, as well as on warehousing and transportation, which significantly reduces the profits of the company, and often even brings it to losses. In order for a product to be in demand, it must correspond to the idea of the market. The study of market ideas is often neglected in order to save money, but in the end there is a loss, much greater than the cost of this procedure.
Chaos as a source of problems
The ninth reason is the lack of a key to the business. Without it, in fact, there is no business, but there is simply a set of chaotic actions that, at the right moments, give some kind of result. Moreover, the driver of these actions is the founder and business – this is just scaling the idea of his personality. A businessman gathers people around him, and they help him to realize the idea of his personality.
The tenth reason is the lack of a marketing strategy
We can say that in this way a household, and not a business, business is built, which carries a great danger to the creator. The problem is that if a business is built on the idea of a person, then over time, the ideas of their personalities at the expense of the business begin to be implemented by employees. There is their banal parasitism on a business that loses profits and does not develop.
The tenth reason is the lack of a marketing strategy. Without it, there is no clear vector of development, but there is chaotic throwing from side to side. At its core , a marketing strategy is just a certain idea that sets this very vector and allows you to avoid unnecessary actions. The idea unites everyone, everyone understands what, how and when to do. Besides, an idea is the only way to create customers and your market.
How to eliminate the causes of low profits
The idea is the base, so it is laid at the heart of the strategy. By implementing it, you create customers for yourself. If there is no idea, then there are no consumers, and they have to be “searched in the afternoon with fire" in foreign or common markets. Getting a client from a foreign or common market costs 10-100 times more than from your own. As a result, over-costs are obtained, and this reduces profits.
As you can see, the reasons for low profits are very diverse, but the main difficulty lies in identifying them.
As you can see, the reasons for low profits are very diverse, but the main difficulty lies in identifying them. Until you know about the reasons, it seems that everything is going as it should, even if there is a low profit. But when there is a clear list of them, you can easily conduct an independent audit and determine whether there are losses. You just need to go through the list of reasons and understand whether the company has a corresponding situation or not.
If there is no situation, then according to these signs there is no loss of profit. If one or more situations are typical for business, then we can talk about losses and it makes sense to conduct an independent comprehensive audit of profit losses. It is inexpensive and will show the scale of the problem, the amount of losses and indicate ways to correct the situation.