Advantages And Disadvantages Of Profit Maximization Pdf

Advantages And Disadvantages Of Profit Maximization Pdf

Risk and RewardRunning a business comes with ongoing risks and, the more you aim to earn, the greater the level of risk you take. To increase sales and maximize profit in a retail store, you must stock up on inventory and invest in marketing to get customers in the door. However, it's impossible to always accurately forecast demand, so you may end up with a glut of items that nobody really wants, reducing the profits that you were trying to maximize.Increasing profit also usually requires added staffing to handle the extra volume, but if your projections aren't accurate you'll likely find yourself overstaffed with a bloated payroll. However, if you make the right choices and your risks pay off, the extra profit you earn will go a long way towards paying yourself well, paying down debt and investing in the future. A Question of FocusWhen focusing on maximizing profit, you may find yourself having to make choices that run counter to your values.

You may earn extra money in the short term if you cut corners and use lower quality materials, but you'll likely create a lower quality product. Aside from the financial issue of losing customers when your substandard products don't meet their needs, you'll also end up taking less pride in your offerings and compromising your values if you've built your business on quality and integrity.Maximizing profit can also be achieved by making employees work harder without paying them extra, or using materials that are harmful for the environment, such as nonrecyclable packaging.

Profit maximization offers the advantage of increased earnings, but it also increases your risk of losing money. When you focus first and foremost on profit, you. The modern finance theory operates on the assumption that the only objective of a business concern should be to maximize the market value of the share or shareholder wealth.

Of course you can put the extra money you earn towards doing good, such as donating to charity or investing in clean technologies. But it's simpler and more straightforward to avoid doing harm in the first place, even if that means earning less profit. Long Term vs.

Short TermProfit maximization has the potential to bring in extra money in the short term, while lessening your long-term earnings. If you devote most of your resources to satisfying one demanding client who wants all of your inventory right now, you run the risk of alienating loyal, long-term clients who aren't as demanding but may spend more over time.If you outfit a facility quickly and cheaply to meet an immediate demand, you may lose out on the opportunity to build a larger facility that takes longer to build, but will yield better earnings in the future.

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Every business aims to earn a profit, but companies exist for other reasons as well, such as providing meaningful livelihoods and working toward social and economic well-being. Profit maximization strategies place clear, focused attention on the process of earning as much as possible. In the process, however, they may lose sight of other goals and aspects of a company's vision.

Risk and Reward

Running a business comes with ongoing risks and, the more you aim to earn, the greater the level of risk you take. To increase sales and maximize profit in a retail store, you must stock up on inventory and invest in marketing to get customers in the door. However, it's impossible to always accurately forecast demand, so you may end up with a glut of items that nobody really wants, reducing the profits that you were trying to maximize.

Increasing profit also usually requires added staffing to handle the extra volume, but if your projections aren't accurate you'll likely find yourself overstaffed with a bloated payroll. However, if you make the right choices and your risks pay off, the extra profit you earn will go a long way towards paying yourself well, paying down debt and investing in the future.

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A Question of Focus

When focusing on maximizing profit, you may find yourself having to make choices that run counter to your values. You may earn extra money in the short term if you cut corners and use lower quality materials, but you'll likely create a lower quality product. Aside from the financial issue of losing customers when your substandard products don't meet their needs, you'll also end up taking less pride in your offerings and compromising your values if you've built your business on quality and integrity.

Maximizing profit can also be achieved by making employees work harder without paying them extra, or using materials that are harmful for the environment, such as nonrecyclable packaging. Of course you can put the extra money you earn towards doing good, such as donating to charity or investing in clean technologies. But it's simpler and more straightforward to avoid doing harm in the first place, even if that means earning less profit.

Disadvantages of wealth maximization

Long Term vs. Short Term

Profit maximization has the potential to bring in extra money in the short term, while lessening your long-term earnings. If you devote most of your resources to satisfying one demanding client who wants all of your inventory right now, you run the risk of alienating loyal, long-term clients who aren't as demanding but may spend more over time.

If you outfit a facility quickly and cheaply to meet an immediate demand, you may lose out on the opportunity to build a larger facility that takes longer to build, but will yield better earnings in the future.

References (2)

Resources (1)

About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.

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Gartenstein, Devra. 'Advantages & Disadvantages of Profit Maximization.' Small Business - Chron.com, http://smallbusiness.chron.com/advantages-disadvantages-profit-maximization-11225.html. 04 March 2019.
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Gartenstein, Devra. (2019, March 04). Advantages & Disadvantages of Profit Maximization. Small Business - Chron.com. Retrieved from http://smallbusiness.chron.com/advantages-disadvantages-profit-maximization-11225.html
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