The profit motive is what drives individuals and organizations to make a financial gain from their business activities.It’s difficult to imagine businesses paying such attention without the profit motive.
All of these very different goals have one thing in common.The desire to make more.This is the definition of profit motive.
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There are many questions you may have about the profit motive. For example, can ‘profit motive’ turn into?greed?” Or is it possible for profit motive to blind you to other important business goals? In short, the answer to both of these questions is yes. But there’s more to it that makes it worthwhile.
As with all other tools, profit motives can be either good or bad, depending on how they are used.Below are some of the potential drawbacks and benefits of the profit motive. There is much more!
The Positive Side of Profit Motive
Stabilizes the market by allowing sellers to compete in order to keep prices and down. This allows for both savings and increased customer attraction.
Businesses are forced to plan for the long term and to accept low profits or losses in order to have higher future profits
Businesses are under pressure to find better ways to conduct business. This can lead to industry standards being reshaped for the better.
Businesses are encouraged to develop new or better products.
Profit Motive: The bad side
Taken to the extreme, it can lead entire industries to engage in risky financial practices that can ultimately result in larger economic crises (think about the ‘housing bubble’ that burst and led to the Great Recession 2008″
Although it is not a common situation for eCommerce businesses, there are instances where profit is all that matters and people who need access to products can be forced to pay exorbitant prices for something they don’t have to (for example, Martin Shkreli, a pharmaceutical executive who monopolized life-saving drugs and then increased the price by over 4,000%)
Although the downsides of profit motive can be nerve-racking to read about, these are extreme cases that aren’t common in eCommerce.It’s important to be aware of the potential pitfalls so you can avoid them.
Let’s now discuss the reasons you want to maximize your e-commerce profits.
What would you do to maximize profit?
Simply stated, you want to maximize profits for your online shop because you have more options and more opportunities to grow your business.
Next, you might ask “What options and opportunities are available when I have more profits?” We’re glad that you asked.
Reiterating, the main reason to increase your ecommerce profits and make your business more profitable is to grow your business.Optimizing your store will increase your profits and make it easier to optimize.
Profit motive, when used correctly, can make your online business a success.How can you determine profit margins in your online business?How can you measure profitability over time if it isn’t measured?
Profit Motive 101: How To Measure Profit
It’s not difficult to calculate profit for an ecommerce company, but it does require careful attention.You will need to monitor how profit margins change and shift over time if you want to increase your profits.This means that you should measure your profitability at least once per month.
You can measure your profit in many ways:
Gross margin can be used to gauge how well your company handles the direct costs of generating sales.
Operating margin shows how well secondary investments (e.g. research, marketing, administrative expenses) are performing for a business.Research, marketing, and administrative expenses are paying off
Net profit margin This is what people think of when they hear “profit margin”; it calculates net sales and net profits.
Whatever you do, measuring profit is key to increasing your profits.You must keep your eyes on the prize. Keep track of your profit margins by regularly calculating them, analysing the data, looking for trends, and then adjusting to improve your margins.
These are our top 3 picks for the best profit motive examples in eCommerce.
Founded in 2013, MVMT (well, used to be) is one of the most prominent names in ecommerce.They quickly rose to become valued at $90million in five years. In the end, purchased them for $300 million.
How did they achieve such high standing in a highly competitive niche?Facebook Ads
They did everything they could to make sure that what was working for them continued.It was not a random roll of the dice.They likely ran a SWOT Analysis and discovered that there were several campaigns that had been performing well.
What are the results?We already said that the founders made huge profits!Without the profit motive, their story wouldn’t have been possible.
In 2011, BarkBox was launched and generated over $25 million in revenue within two years.They merged with Northern Star Acquisition Corp. in December 2020, bringing their total value to $1.6 billion.
How did this subscription-based company make dog snacks and toys such a huge success?Personalization!
Each month’s box includes a selection of doggy treats. The products can be customized to fit the dog’s size, breed, allergies and other special needs.This allows them to offer such great service by calling and emailing select customers each month.
BarkBox is a respected brand in the pet supply industry because of the insights that they have gained from going the extra mile.Their motivation?Profits!
3.Dollar Shave Club
Dollar Shave Club was also founded in 2011 as an affordable alternative to buying expensive razor blades at your local pharmacy.They expanded their product range to include more men’s grooming products a few years later.They were bought by Unilever , the industry giant , for $1 billion cash.
What is Dollar Shave Club doing differently?Here are a few.
They make it easier to buy razors online than in-store.They also offer flexible subscription plans and are available to those who don’t shave.It’s amazing!Dollar Shave Club also invests a lot of effort in retention.
They are so focused on keeping customers coming back that they can keep a remarkable 25% of their subscribers for four years .This is a remarkable retention rate for those not familiar with ecommerce metrics.It’s all due to their bottom line goal, which is – yes, seeking profit.
Profit Motive: 6 Best Methods to Increase Your Margins
Now that we have a good understanding of the profit motive, let’s take a look at six ways to maximize profits and scale up your business.
1.Keep track of profits and expenses
It can be hard to get a good understanding of your store’s data, especially when you are busy with day-to-day tasks.The BeProfit profit tracking app is a great way to increase your online store‘s profits.
BeProfit allows you to make sense of all your data. It provides an easy-to-read dashboard that analyzes and tracks your company’s expenses and profits.BeProfit can help you jumpstart your path to becoming more profitable.
No matter what your business is, it is important to audit your overhead costs.
3.Eliminate ‘unnecessary products’ or processes
There will always be some products that sell better than others.You may even want to target that product to encourage customers to buy more profitable products.
You don’t want to lose money by holding on to items that aren’t selling.You can review your inventory and reduce the number of products that aren’t selling in a while.You can replace them with cheaper items.
4.Rethink your pricing strategy
It doesn’t matter if you’ve been in business for months or years. Now is a good time to look at your pricing strategy.You may have had a pricing strategy where profits were sacrificed for higher sales volume when you started your business.You may have changed your pricing strategy to increase average order value as your business grew.As your business grew, you might have switched to more competitive pricing strategies.
No matter where you are on your business journey, reviewing the pricing of your store is a great way to increase profitability.
5.Operational wrinkles can be smoothed out
The reduction of overhead costs is directly linked to streamlining your business operations.It can also be applied to other aspects of your eCommerce store.Streamlining is designed to reduce friction points that can slow down your business’s progress.These friction points can include poor landing pages, slow customer support, lengthy shipping times, difficult return processes, and many other things.
These problem areas can be addressed to reduce key performance metrics such as:
It is crucial to know the repeat purchase rate of your online business if you want to build a profitable business.Increased sales equals more revenue which in turn leads to greater profit.You may be able to decrease your ecommerce marketing budget by increasing the number of repeat customers without any negative effects.
Simply put, more customers = more profit for your company.
What is your profit motivation?
Every eCommerce business owner knows that the profit motive exists.Learn how to use the profit motive wisely and where it comes into play to maximize your profit.These are the essential elements to set up your business for success.