Justin Lee

Nowadays, a huge listed company may have a net profit of only a few million or even less than one million a year; and many small business owners claim that they are making money every day, and their annual net profit is not inferior to that of the listed companies mentioned above. Why is this?

Differences in cost structure

Fixed cost: Small enterprises or individual enterprises are usually small in scale, and fixed costs (such as rent, equipment, cost per person, etc.) are relatively low. This means that at the same income level, the proportion of profits of small enterprises or individual enterprises will be higher.

Operational efficiency: Small enterprises or individual enterprises are often more flexible and can quickly adjust production or business strategies to control costs more effectively. In addition, due to their small scale, they may be easier to achieve refined management, reduce waste and improve operational efficiency.

Market positioning and product differentiation

High-end market positioning: Some small enterprises or individual enterprises may focus on the high-end market and provide high-quality, high-value-added products or services. These products or services tend to be sold at a higher price, resulting in higher profit margins.

Product differentiation: Small enterprises or individual enterprises are usually more likely to achieve product differentiation and attract consumers through unique designs, functions or services. This differentiation strategy helps to improve the price and profit margin of products.

Price strategy and profit margin

High-price strategy: In the start-up stage, in order to quickly accumulate capital and build brand awareness, small enterprises or individual enterprises may adopt high-price strategies. This strategy will help improve the profit margin in the short term.

Profit margin: Due to the small size of small enterprises or individual enterprises, they may be more likely to occupy an advantageous position in the supply chain, thus obtaining higher profit margins. For example, they may establish more special cooperative relationships with suppliers and get more favorable purchase prices.

The impact of taxes and regulations

Tax incentives: In order to encourage entrepreneurship and the development of small and medium-sized enterprises, the government usually provides tax incentives. These policies help to reduce the tax burden of small enterprises or individual enterprises, thus improving profit margins.

Regulatory flexibility: Small enterprises or individual enterprises may be more flexible in complying with regulations. For example, it may be easier for them to adjust their business strategies to adapt to changes in regulations, thus avoiding additional costs.

Competitive environment and market position

Competitive pressure: Compared with large enterprises, small enterprises or individual enterprises may face less competitive pressure. In some market segments or specific areas, small enterprises or individual enterprises may have unique competitive advantages, making it easier to obtain high profit margins.

Market position: With the development of the market and the continuous changes in consumer demand, it may be easier for small enterprises or individual enterprises to seize market opportunities and quickly respond to consumer needs, so as to occupy a favorable market position and obtain high profit margins.

It is worth noting that the above advantages do not exist absolutely, and with the changes in the market environment and the development of the enterprise itself, these advantages may gradually weaken or disappear.