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What are the Key Factors of a Profitable Business?

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  • Written By: Florence J. Tipton
  • Edited By: John Allen
  • Last Modified Date: 01 September 2016
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Key factors of a profitable business may vary, but generally require having an organized structure of business strategies. Most businesses have a chance to become profitable by having a written plan, which outlines the vision for the business. Market fluctuations and other external forces may affect profitability, but having the business plan provides a written description of what the business needs for success. The business plan prepares a business owner for real-world obstacles and perceived threats to having a profitable business. Generally, components of a profitable business plan include marketing efforts, sales strategies, and the operational costs to develop a product or service.

Generally, a business plan will also include a marketing plan. Advertising, connecting with customers, and matching need with business solutions are typical components of the plan. A marketing plan may also outline strategies to acquire new customers and retain the loyalty of existing ones.

Marketing plans may support the sales strategy of the business. These efforts are usually based on the industry, the business's objectives, and its products or services. Part of the marketing strategy for a profitable business may also target specific customers by considering geographic location, culture, and demographics.

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The use of a marketing plan to promote products and services is generally a critical factor in profitability, often tied to the sales strategy. Together, a marketing plan and sales strategy may reveal how supply and demand will affect business profits. This also relates to external factors that can derail business success.

Understanding current and potential customers’ buying habits might enable a business to craft a winning sales strategy. Generally, the sales strategy could directly impact earnings without the right balance of supply and demand. Additionally, creating a sales strategy could highlight advantages of the business and how it satisfies customer need.

When customer demand for a specific product or service is low, having a surplus of goods decreases sales. A business will cease or reduce supplying a product or service until consumer demand picks up. Strong demand may increase sales projections, thereby increasing production.

Supply and demand may also affect how much a business can charge for a product or service. Low demand for a product or service could equal lower prices and determine whether a business is profitable. Conversely, high demand may increase the value of a product or service and cause business profits to increase.

Decision makers in a profitable business usually determine the price point — an amount that reflects a fair price — based on projected demand. If the price is too high consumers may buy less, especially if they lack the ability to pay the asking price. Consumers may buy from a competitor that sells the same or similar product for less or simply do without.

Operational costs may also impact whether a business is profitable. The operational costs of producing goods or services generally include labor, materials, and equipment. Spending too much on operational costs may result in higher prices and a business may see fewer profits.

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