Profit squeeze definition
/What is a Profit Squeeze?
A profit squeeze is a decline in earnings over a period of time. A profit squeeze can damage a firm severely, so management needs to anticipate its underlying causes and shift the business into a different market segment or geographic area, or adopt some other innovation that allows the firm to continue earning its accustomed profit. Otherwise, the organization will eventually fail or be acquired by some other party.
Causes of a Profit Squeeze
There are many reasons for a profit squeeze. Here are several possibilities for why it might be occurring:
Increased costs. A business could suffer from increased operating costs, increased financing costs, or increased taxes.
Increased competition. A business might be suffering from increased competition, leading to a decline in the prices at which it sells goods and services to customers.
Altered regulation. A business might be suffering from more burdensome regulatory oversight that requires more staff time.
Changes in consumer preferences. Customers may find that the company’s products are no longer appealing, and so begin to make purchases elsewhere, causing a decline in sales.