How Can Profit Maximization Be Achieved?

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Introduction

In the current era of globalization, it becomes essential to ensure that the level of profitability is maintained in the level of business to be able to beat the competition. This requires the businesses to take several steps which include cutting the frivolous costs that are incurred under the purview of business, enhance the revenue as much as possible and reduce wastage in terms of the business activities. Such numerous steps together form a mechanism that the businesses could deploy to ensure the extent of profitability and even maximize their profits in the longer run. There are several techniques that businesses could deploy in order to ensure profit maximisation; some of these techniques have been discussed in this study.

Discussion

For any business, the bottom line of its approach is to enhance the level of profit as much as possible. The key to success in this aspect is to ensure the focus on the end goal and divert the activities in a manner that the business profits not only grow but they also contribute in the expansion of the business itself. Even though there can be several ways in which a business could choose to function, profit maximisation is often linked to the optimal use of resources which are needed in the purview of the business to ensure the maximisation of its sales, revenue as well as profits. Some of the ways the business can use for maximisation of their profits has been discussed in the following section (Akter, S. et al , 2019).

Proper Adjustment Of Operational Cost

For a business, it is essential that the revenue it earns through its activities must exceed the expenses that are incurred under its purview.  So, the first step that ensures this is to monitor the operational costs that are incurred in the purview of business. The operational costs tend to include fixed costs, variable costs and the overheads incurred by the organisation to ensure the proper production and delivery of its good or services, the activities in which it could be involved (Östberg, 2020).

In the longer run, a business would have to ensure proper management particularly of its overhead charges. The fixed as well as variable costs are usually the repetitive costs and usually do not change unless there is a general change in the market level of cost of inputs. However, Essay Writing Service in Oman said overhead costs under the purview of operational costs could be the trickiest to manage. The category of overhead charges can be one of the biggest and trickiest to manage, and end up having a profound impact on the level of total average cost which has been incurred in the business (Purnomo & Kristiansen, 2017).

In the prospect of profit maximisation, the business must ensure that any frivolous wastage in terms of cost, misappropriations in the accounts, or any expenses that are avoidable must be avoided to ensure that overall level of cost incurred remains low. Further, if the fixed or variable costs of inputs are found to be increasing, the business would have to ensure that the rise in cost are justified and if there is an alternative available to lower the costs without compromising the quality, it must be considered. Thus, the overall aim in the purview of profit maximisation would be to ensure that only genuine costs are incurred, frivolous costs are avoided, and the overall cost is minimised in comparison to generate higher revenue per unit (Carleton & Herman, 2021).

Proper Evaluation Of Cost Of Investment And Return On Investment

Another aspect of business for enhancing the level of profitability is proper evaluation of its investments in lieu of its cost structure. Simply minimising the cost is not the goal. Under this aspect, the business must ensure that investments it makes in terms of costs must also ensure a proper return on them as well. This requires that the organisation must ensure a proper mark up on the goods or services it sells. This however, is not that simple (Carleton & Herman, 2021).

In the competitive world like current era, the businesses aim to capture the market share by the deployment of several techniques. Online assignment help defined One of these techniques is to meet market competition by cost advantage. Thus, the business sometimes aims for keeping their prices as low as possible to beat the competition. But this affects the profitability as there is a lack of significant marks upon each unit of leading to less profitability. On the other hand, if the business keeps the mark up much higher, it may stand the chance to lose the customers to its competitors in the market, which also leads to loss. So, the markup has to be appropriately decided that each unit makes a desirable profit while being favored by consumers against the competitive products as well (Wojtkowiak, 2018).

Figure: Formula to calculate return on investment
Source: (Carleton & Herman, 2021)

The above figure represents the way return on investment is calculated. The regular appropriation of return of investment in this aspect tends to play a crucial role. The organisations must ensure the proper and regular appropriation of ROI to make sure that gains or even losses are properly known, and subsequent investments can further be planned keeping the desired rate of profit in the aspect of the business in the purview (Carleton & Herman, 2021).

Productivity Of Employees

Employees tend to be one of the key investments that the businesses tend to undertake in course of production of the goods or services. It is highly likely for the business to desire the return on this investment as well, leading to the profit maximisation. The first step in this process is to evaluate the level of productivity average employee tends to have in the work hour units, further, it needs to ensure that proper motivation techniques are deployed to increase the morale of employees to engage in productivity enhancement voluntarily (Bo, 2016). To know more take assistance from assignment help experts of OmanEssay

When the employees are happy and motivated by the way they are treated, their compensation as well as the opportunities they are provided, they tend to develop a sense of responsibility for the organisation as well, which further contributes in getting quality work done in shorter span of time. All these factors directly contribute in the overall profit maximisation.

There is existence of direct relationship in the productivity and profitability. While productivity as a measure tends to ensure that the amount of output against the amount of input for a given span of time, the term profitability is the leftover of revenue after all the expenses and taxes of business. Monitoring the level of productivity ensures profitability in the ways like more than necessary goods are not produced or employee activities do not lead to generation of wastage, The cost of raw material remains in the budget estimates, and the average cost of labour per unit is as low as possible. Thus, monitoring the level of productivity of employees leads to better efficiency, further leading to the profit maximisation (Mouter, Koster, & Dekker, 2021).

To achieve this, the management of the organisation must ensure that realistic goals are set for employees, proper incentives are provided for better performance or over achievement, and subsequently, the measurable key performance indices are set for achievement of goals and subsequent profit maximisation.

Proper Reinvestment Of Gains

The profitability of the overall business is not just dependent on the gains made by per unit of sales, rather it is also dependent on the ways business further make use of the gains they have already made. For the overall profit maximisation under the purview of the business, it is essential that at least 10 per cent of the profits made by the businesses are invested back in them for further growth and expansion, leading to subsequent profit maximisation (Maley, 2018).

It is considered that the money kept idle is as good as the loss in the aspect of the business. Thus any surplus that the organisation keeps, apart from the contingency funds, must be re-invested to ensure that there is further generation of revenue and subsequent profit maximisation. Thus, the primary reason of re-investment itself is the enhancement of profits by various means like attracting new consumers, establishing newer business locations, establishing additional revenue streams to enhance the level of profitability. Plagiarism free assignment help illustrated all these activities like diversification that are intended to enhance the profitability require investment, which could either be in form of capital or loan, and both tend to be further expensive in comparison to reinvestment of profits into the business (Milano, 2019).

Monitoring Uncontrollable Factors

It must be remembered that despite best efforts to ensure the minimised cost and maximised revenue, the desired level of profitability might not be achieved. This could further be attributed to those external factors affecting the organisation, which could not be controlled. These factors tend to include external market factors, fluctuations in economic factors, occurrence of natural disasters or outbreaks of pandemics, on which the business might have no control and yet bear the loss or decreased profitability due to such occurrences.

Even though these circumstances cannot be avoided by the organisations, several steps could be taken to ensure that chances of losses are minimised and a level of profitability is maintained. Prevention of decline in existing profitability or minimisation of loss on occurrence of such adverse events is also a significant level of profit maximisation in a manner (Maley, 2018). Get to know more from Coursework help team of OmanEssay

For this, it is essential that the market and economic conditions are regularly monitored and forecasts are regularly evaluated so that the business ensures that an appropriate action plan is prepared in its due course to deal with upcoming uncontrollable events. In case of proximity to factors like natural disasters, the business can invest in insurance, which tends to be a significantly profitable move if the organisation is prone to such events that could lead to considerable losses (Mattsson, 2019).  

When Can Profit Maximisation Be Bad For Business?

It can be surprising fact that sometimes profit maximisation can be bad for businesses as well. The rationale is, if the businesses end up taking unethical practices in the longer run like selling cheaper products for higher prices, using deceptive sales practices, maintains bad employee relations or harassing employees for productivity, etc. While in the shorter run, such tactics could help the business in maximising its profits, the business stands to lose its credibility among customers, would not be trusted by employees, and subsequently would lose its most valuable stakeholders. So, if there is lack of proper personnel to work or absence of credibility among customers to make proper sales, this would in turn lead to significant losses in long run (Milano, 2019).

Thus, profit maximisation through unethical means would end up harming the business itself, and it must be avoided by the organisations. Feel free to connect dissertation abstract help of Omanessay

Conclusion

In the aspects of this study, it could be understood that profit maximisation tends to be the ultimate goal of any organisation. While it could be simply addressed as reducing costs as much as possible and increasing the revenue as well, it may not be just as simple to do for the organisations. The study has discusses the aspects of return on investment, the ways productivity contributes to profitability, and majorly that unethically procured profit maximisation can actually be a loss for the business in the long run. Thus, profit maximisation could be achieved through ways like evaluation of cost of investment and return on investment, Proper adjustment of operational cost, Monitoring uncontrollable factors and ensuring the level of employee productivity in the organisation.

References

Akter, S. et al . (2019). The Rise of the Social Business in Emerging Economies: A New Paradigm of Development. Journal of Social Entrepreneurship , pp. 282 -299. .

Bo, C. (2016). The rate of return to investment in R&D: The case of research infrastructures. Technological Forecasting and Social Change , pp. 26 – 37.

Carleton, P., & Herman, M. (2021). Return on Investment (ROI). Retrieved from https://investinganswers.com/dictionary/r/return-investment-roi

Maley, J. (2018). Preserving employee capabilities in economic turbulence. Human Resource Management Journal , pp. 147 – 161.

Mattsson, P. (2019). The impact of labour subsidies on total factor productivity and profit per employee. Economic Analysis and Policy , pp. 325 – 341.

Milano, S. (2019). When Is Profit Maximization Bad for Business? Retrieved from https://smallbusiness.chron.com/profit-maximization-bad-business-58997.html

Mouter, N., Koster, P., & Dekker, T. (2021). Contrasting the recommendations of participatory value evaluation and cost-benefit analysis in the context of urban mobility investments. Transportation Research Part A: Policy and Practice , pp. 54- 73.

Östberg, J. (2020). Corporate Sustainability and Profit Maximisation in the Land of Unicorns. Faculty of Law, Stockholm University Research Paper No. 88 .

Purnomo, B., & Kristiansen, S. (2017). Economic reasoning and creative industries progress. Creative Industries Journal , pp. 3 – 21.

Wojtkowiak, G. (2018). Profits or Employment: Priorities of Future Managers. International Journal of Sustainable Entrepreneurship and Corporate Social Responsibility , p. 14.

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