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A business could perform poorly at realizing decent margins for several reasons. Here, we’ll talk about 5 of them. In addition, we’ll suggest things you can do to tackle those issues. What follows is a discussion of the hindrances to profitability for organizations like yours.
The Demand for Your Product or Service
As a rule, lower sales translate to relatively low profits overall. Quite often, poor sales are the result of weak demand. Weak demand is an outcome of challenges ranging from difficult economic conditions to a product that’s perceived as subpar. In some instances, the affected offering isn’t raking in sales because it’s going out of fashion (i.e. consumer tastes are evolving). The solution to a lack of profitability arising from inadequate demand will depend on what’s keeping demand low. If it’s a stagnant or shrinking economy, you could try tweaking production to lower your costs, which would in turn lower your prices; or you might lean into “sachetization” and sell smaller sizes of your product for less.Intense Competition
Businesses that operate in very competitive environments may struggle to sustain profitability. Competition could involve, among other things, engaging in price wars—which leads to prices plunging in a race to the bottom. A consequence of this is that margins are erased, and with them the prospect for any significant profitability. A remedy to depressed profitability emanating from stifling competition is carving out a niche for your business. This doesn’t necessarily mean you shift away from your current product category. It may just be that you adjust its features in ways that make it truly unique, and intentionally promote it as that. But if this doesn’t yield appreciable results, you should consider pivoting to a less crowded segment of your industry at the very least.Costs
Your prices—and eventually, your profitability –are determined in large part by your production costs. Higher costs mean higher prices and high prices are a turnoff for many would-be customers. In Nigeria, soaring production costs are usually the result of inflation, exchange rate devaluation, insecurity, and poor transportation networks.Sign up for the Connect Nigeria daily newsletter
To make your product appealing to a larger number of people, you’ll have to figure out ways to maintain its affordability. You can achieve this by taking various steps, from sourcing production inputs locally to renegotiating terms with vendors (or finding new ones). You may also run leaner operations and zero in on efficiency.
Marketing
It’s not enough to build products. You will also have to market them to your target audience. If you don’t, you may not attract as many customers as you hope. And without purchases, your business won’t be profitable. A great marketing campaign is one that successfully targets your specific kind of audience, with messaging that resonates with them. You will need both these to drive traffic to your door (or website).Quality of Management
A lot rides on the quality of management at your business. One that’s in good shape and functioning optimally will deliver growth and lay the foundations for a sustainable future. But there’s also a chance that management falters, and causes your business to derail. You and your managers need to show leadership and organize team members in ways that make them more productive. This isn’t merely about overseeing projects so that they’re completed on time; it also involves showing a passion for the company’s success. This eventually rubs off on other employees, who will follow your lead and contribute to the profitability of the business.Register to attend the CN Business Mixer
Final Words
We have presented you with 5 reasons why your business is not profitable. If you aren’t generating a fair amount of profit, it’s likely because of one of the reasons we’ve discussed here. Take a close look at it to find out what’s causing your lack of profitability, and employ the appropriate solution we’ve talked about here.Did you find this article useful? Contact us: editor@connectnigeria.com
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