Profits are what we look for in any type of enterprising. Of course, there will never be a day where we will say we have made enough. It is a cause of concern that most of us only realise that they were making artificial profits when the business has closed.
Especially in the process of lawsuits as creditors and other service providers demand their payments.
It has become a trend for most entrepreneurial businesses, and we should nip this problem in the bud before it becomes a lifetime experience of all supposed to generational entrepreneurial businesses.
As reflected in some previous editions most are quick to be happy and squander what they don’t have through miscalculations and ignorance. Here we help each other as we bring in the idea of calculated profits in entrepreneurship.
The type of business as defined by a sector you belong is the first main determinant of profit.
An entrepreneur should have more knowledge about the market where he/she is going to invest in and serve.
Most just move with a certain bandwagon without making that a thorough analysis so as to find their perfect fit.
In business economics we talk about market structures where one extreme is a perfect competition, and another is a monopoly.
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Those two structures talk more when looking at expected initial profits of any business venture.
The former is most common in every sector of our global economies. This is when the entrepreneur will enter in an industry that is dominated with intense competition.
Here not only other competitors have perfect knowledge of the market being served but also the targeted customers.
In the sense that the competitors will know how you are making your product/service and can easily imitate the same to share your profits.
Customers will also be in a position of knowing where they can get a similar product/service you are providing with a better quality and cheaper price.
As with the latter is a monopoly which is not usual at the inception of many entrepreneurs where you enter as the sole owner of all profits in that industry.
No one else is competing with you. Like said above this is an unusual state of affairs for many start-ups as they usually start their operations in a sector/industry that is already dominated by others.
The question is how to make your business a monopoly. Of course, here we will share some of the critical aspects. Mainly product/service differentiation is the starting point.
You might all be selling soap but the idea to make profit is in what you do to make it different from the rest.
Mostly, meeting quality beyond expectations of the customers is the start.
Like always said that quality is in the eyes of the beholder just like beauty an entrepreneur should know and provide the level of quality as needed/expected by the customer(s). Remember it takes two to tango you and the customer.
Going forward into the real day to day operations we should move from simple revenue and costs summation to real contribution analysis.
That is the same reason why in every type of start-up business modelling there is need to first establish a break-even point.
From a business economics perspective there is need to categorise all types of costs in their total and average.
Here we should classify fixed cost (FC), variable costs (VC) and semi-variable/fixed costs.
Having these is not the end but a start in determining real profits. We should go further into the averaging so as to come up with average fixed costs (AFC) and average variable costs (AVC).
This will determine the contribution of each unit produced to both the fixed and variable costs.
Many of us are not doing this as we are working with absolutes. That is dangerous as you are going to spend what you do not have.
We should be moving towards non-numeric settings to influence profits through promoting differentiation and product/service uniqueness.
Branding is one key element to infuse in our profiteering. Where our ways of doing business become for us only and attract a huge customer base rather than sharing with others.
In the same sense we should work with simulations to lead in other cost allocations and revenue generation as supported by contemporary tools/technologies.
We should not forget that revenues also need to be averaged as most businesses units are taking glory of the revenues made by others with them contributing nothing. Food for thought as we plan for real profits.
*Dr Farai Chigora is a businessman and academic. He is the head of business science at the Africa University’s College of Business, Peace, Leadership and Governance. His doctoral research focused on business administration (destination marketing and branding major, Ukzn, SA). He is into agribusiness and consults for many companies in Zimbabwe and Africa. He writes in his personal capacity and can be contacted for feedback and business at [email protected], www.fachip.co.zw, WhatsApp mobile: +263772886871.
