I’ve been reading ahead in my A-level economics syllabus and was fascinated by the topic of business objectives. Businesses have two main goals: revenue maximisation and profit maximisation. Revenue maximisation is when a business employs strategies to increase its sales to the highest attainable level. Profit maximisation refers to activities involved in the company’s effort to boost net profit to the highest possible degree given the firm’s available resources. Different roles within a firm focus on either profit or revenue maximisation.
The primary responsibility of a marketing or sales manager is to achieve sales targets over a given time period. In addition to achieving sales targets, a sales manager is expected to maximise sales to provide growth for the business and increase its profit margins. Profit maximisation is a task that is pursued by the general manager or CEO. That person is the one who is in control of all aspects of business operations. He must plan, organise, direct and control all business resources to earn the highest attainable net profit in order for the firm to not become insolvent.
I partially agree with the idea that revenue maximisation is a more realistic and achievable business objective than profit maximisation. To achieve revenue maximisation, a business must concentrate solely on revenue transactions and this can be accomplished by employing various sales strategies and programs. Profit maximisation entails a more complex program of business plans and activities that does not concentrate on sales alone. It encompasses both revenue and expenditure. A business manager must increase revenues, decrease costs or do both to increase net profit. However, it can be argued that profit maximisation in the long run is essential for a business to stay afloat.
On the other hand, when looking at a business’ objectives in the short run, their number one priority would be revenue maximisation. Revenue is the total number of sales being made a business. By maximising this, a business would be able to grow a larger customer base, which would consequently lead to the firm obtaining a larger market share. This would be beneficial to the business when their main goal becomes profit maximisation, as having a strong share of the market makes it easier to increase prices or reduce expenditure (in order to increase profit margins).
For example, a firm which has a large market share would be able to get good deals from suppliers and would therefore be able to use economies of scales to produce more for a lower price. This therefore reduces expenditure and also means the firm can increase revenues as they have a higher level of production, there being able to maximise profits. However, this depends upon the type of business. A small business with minimal financial investments might struggle to sustain their business activities without healthy profits. Furthermore, a business with many shareholders may also put focus on profit maximisation in order to provide large dividends for them.