1.1.2 Business Objectives Flashcards
Profit
Sales revenue with cost deducted
Sales revenue
Price x quantity of each unit
Profit maximisation
A business objective possible in the short run or long run → ensure the best output and price levels are achieved in order to maximise its returns.
Entrepreneurs
Individuals who set up businesses, accepting the risks involved, taking decisions on what to produce and how and working out how to market the product
Sales maximisation
a company’s attempt to generate sales revenue to the highest degree possible.
Satificing
Reaching a good enough profit level without maximsing
Market share
the proportion of a specific market that is supplied by one business. Calculated as total sales by the business as a percentage of total sales in the market. Large share of the market = market power, degree of security and reduced risk
Cost efficiency
An objective for some businesses as it helps them compete effectively → greater efficiency in resource use cuts production costs
Social objectives
Includes employee welfare, sustainability for companies concerned with the environment, and ethicality to take into account the impact on its employees, local environment and customers
Customer satisfaction
An objective that ensures customer loyalty by keeping a good reputation for its business. May be pursued to ensure good profits or on a principle of concern for the customer.
10 business objectives
- profit maximisation
- sales maximisation
- satisficing
- survival
- market share
- cost efficiency
- return on investment
- employee welfare
- customer satisfaction
- social objectives
profit maximisation
eg Anita Roddick → The Body Shop
- Entrepreneurs set up a business with the motivation to get as rich as possible
- This can be because riches fund a luxurious lifestyle or simply because some define success in terms of wealth
- Profit provides some security and can be the route to riches provided the total revenue from sales is greater than the total costs of the business
independence as a motive
- The desire to be among the top earners is strong in some people: keeping the rewards of your own ideas and efforts, and making as much possible proves to be good motivation (Kylie jenner)
- Top 1% in the UK earn £250,000
- Top 10% take ⅓ of income
sales maximisation
(why needed and how can it be done)
Elon Musk: serial entrepreneur
- Small businesses can be seen as fragile and risky, while growth can bring some stability and increase the chances of survival
- Building up a customer base and earning their loyalty can make their future more secure
- Larger business has a stronger competitive position and become more powerful in their market → can still face competition (tesco vs lidl and aldi)
- Sales maximation can be a short term objective
Once a business has a good market share its emphasis could shift to profitability
satisficing
- Entrepreneurs want to have family time and pursue hobbies and not spend every minute working. Having ‘Enough’ income usually means haing less than maximum profit → satificing
- UK recession → people becoming self-employed and start their own business. Many earn less than in employment
Some may want to earn more others may be content with the work-life balance they have
survival
- Some entrepreneurs derive satisfaction from the survival of their business, because it represents personal achievement/continues family tradition
→ grows more important when times are tough - Risky as consumer can not buy as tastes can change + more competition
market share
- Building and retaining market share has a high priority for some people and can become an objective rather than a means to an end.
- Market share = percentage of the total market supplied by any one business
- Can be a short term objective but for some it is a permanent priority → stability and security can be more important than profit but these objectives can be linked
- Leading business owners in a community may value their position as the leading local provider of their product or service
cost efficiency
- Operating efficiently with minimum waste and the lowest possible unit costs (cost efficiency) can become a source of pride and satisfaction as well as profit
- Environmentalists concerned with resource depletion and climate change are often passionate about their concerns
return on investment
- Businesses need finance for capital equipment and work in progress
- Healthy return on return on investment is key in the business
- This money has an opportunity cost → it could be put to some other use or kept in the bank, on deposit and earning interest
- This becomes important if the business depends on loans, and the lenders will expect a return on their money
customer welfare
- For many businesses, maintaining customer satisfaction is simply a matter of ensuring sales revenues stay healthy
- Simply a party of the competitive process, making sure that customers do not switch to other suppliers
- For other businesses it is a matter of principle that the customer should get a good quality product that meets their needs
employee satisfaction
- Objectives can be based around the personal satisfaction that people in business see as self-fulfilment. This is most evident with creative and artistic businesses (potters and perfomers), but can take many forms
- Many get fulfillment from doing what they regard as a good and useful job
lifestyle as an objective
- Objectives can centre around lifestyle → family ties meaning entrepreneurs frame business hours to fit with family commitments
- Many value college social interaction with colleagues
- Being in control of their working life has a strong appeal to some, who do not want to fit in with conventional employer expectations
Eg richard Branson - virgin group
what are social objectives
- Businesses develop social objectives alongside that of survival. They may recognise the need to make a profit but still not be profit maximisers.
- They may publicise their ethical policies which may include a concern for employee welfare, customer satisfaction and the community in which they operate.
- Many businesses are considering paying a ‘living wage’ —> this is above the national living wage and could help to reduce poverty for those in low paid work.
This includes:
- Promoting diversity: Rihanna + Fenty beauty/house of Fenty
- Having an ethical stance: environmental, social etc: FareShare, Emmaus
