profit motive business plan

• Search Search Please fill out this field.
• Small Business
• Small Business Taxes

Profit Motive: Definition, Economic Theory, Characteristics

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

What Is the Profit Motive?

The profit motive is the intent to achieve a monetary gain in a project, transaction, or material endeavor. Profit motive can also be construed as the underlying reason why a taxpayer or company participates in business activities of any kind.

Simply put, the profit motive suggests that people tend to take actions that will result in them making money (profiting). In economic thought, Adam Smith identified the profit motive in his book, The Wealth of Nations, as the human propensity to truck, barter, and trade.

Key Takeaways

• The profit motive refers to an individual's drive to undertake activities that will yield net economic gain.
• Because of the profit motive, people are induced to invent, innovate, and take risks that they may not otherwise pursue.
• Profit motive is also a technical term used by taxing authorities to establish a basis for levying taxes.

Understanding the Profit Motive

Profit motive is thought to be one of the main drivers behind economic activity. Economists have often tried to figure out why people do the things that they do. Some answers point to simple survival. In most situations, people need some form of income to pay for the necessities of life. But what drives some people to take the risk of starting a business or innovating?

The answer can be framed in terms of an individual's profit motive—the drive to undertake some activity with the hope and expectation of being wealthier for doing so. In this view, the reason we live in a world of smartphones, fast fashion, and matcha lattes is because someone thought they could make money selling them.

The idea of a profit motive was behind Adam Smith's invisible hand , which suggests that self-interested, profit-seeking individuals are broadly beneficial to society. Smith noted that people seeking profit through the buying and selling of goods, for example, help to effectively distribute capital and goods far better than a political body could.

How the Profit Motive Works

In theory, the profit motive helps everyone from individuals to corporations decide what to do at a particular time. Looking at profit, or the potential for profit, simplifies many decisions. If a company makes five different products and earns most of its profit from just two, then the profit motive view would suggest that the company dump the unprofitable lines and invest more in the profitable production lines .

Similarly, a person would want to focus on the activities or employment opportunities that offer the most return for their efforts. For some people, this will mean the highest paying job. For others, it may mean creating their own enterprise with hopes of a higher income in the future.

The profitability of a particular activity is, in theory, communicated by market signals that ultimately are a function of supply and demand . The higher the demand (or potential demand), the higher the profitability (or potential profitability). When the profitability is high, more people and businesses will seek out that activity.

While the idea of profit being part of the motivation behind all manners of economic activity is not controversial in itself, there has been more scrutiny and analysis around applying it as the only factor in decision making.

Critiques of the Profit Motive

In practice, the profit motive is one of many factors that influences how people and businesses act. People, in particular, make their decisions based on a number of social and personal motivations beyond profit.

People may pick a less profitable activity because it benefits them in other ways that are not measured in terms of money. Businesses, too, are being encouraged not to focus solely on profits, particularly with the push for environmental, social, and governance (ESG) criteria .

The pushback against the profit motive as the main driver behind decisions is often connected back to the fallout of the 2008 financial crisis and the recession that followed. Corporations solely motivated by short-term profits and incentivized to seek them by investment capital wreaked havoc on a highly interconnected global economy .

Although many of the critiques and criticisms were targeted at companies looking for excess profits while ignoring inherent risks , the idea of the profit motive being a benevolent force acting on society was also a frequent target. While the idea of the profit motive is still seen as broadly correct and able to explain economic activity in general terms, it is not meant to be a playbook for companies to use in all their decisions.

Profit Motive and Taxation

The profit motive is used in a more modest way as a defining factor in tax decisions. According to the Internal Revenue Service (IRS), taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit, that is, an activity undertaken with a profit motive.  

Profit motive is also what separates a hobby from a business in the eyes of the IRS— losses from a hobby  are non-deductible because there is no intent to make real economic profit. Since hobbies are activities participated in for self-gratification, losses incurred from engaging in them cannot be used to offset other income. Hobby income, even if occasional, must be reported as “ordinary income” on  Form 1040 .  

Taxpayers used to be able to deduct hobby losses as a miscellaneous itemized deduction on Schedule A, but the Tax Cuts and Jobs Act of 2017 eliminated that deduction.  

Another way a business owner can establish profit motive is by showing that they operated for profit under the IRS's nine criteria profit motive test.   The nine critical factors used by the IRS to determine whether a business is run for profit or as a hobby are:

• Whether the activity is conducted in a business-like manner
• The expertise of the taxpayer or their advisers
• Time and effort spent in operating the business
• The likelihood that the business assets will appreciate in value
• Past success of the taxpayer in engaging in a similar (or dissimilar) venture
• History of income or loss of the activity
• Amount of any occasional profits earned
• Taxpayer’s financial status
• Any elements of personal pleasure or recreation  

Internal Revenue Service. " Deducting Business Expenses ." Accessed Aug. 26, 2020.

Internal Revenue Service. " Publication 525: Taxable and Nontaxable Income ." Accessed Aug. 26, 2020.

Internal Revenue Service. " IRC Sec. 183: Activities Not Engaged in For Profit (ATG) ," page 4. Accessed Aug. 26, 2020.

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

This site uses cookies to store information on your computer. Some are essential to make our site work; others help us improve the user experience. By using the site, you consent to the placement of these cookies. Read our  privacy policy  to learn more.

• TAX INSIDER

How to determine profit motive

In two cases, the tax court looked at factors besides a history of losses in determining whether the hobby loss rules would prevent the taxpayers from deducting their expenses..

• Individual Income Taxation

As professionals, we've been beaten over the head with the Sec. 183 hobby loss rules, which prohibit deductions for activities not engaged in with the intent of making a profit. Some practitioners think, and with good reason, that to avoid the hobby loss rules, a company has to show a profit after three years, but that's more a rule of thumb. For example, let's say a client is aggressively attempting to realize income from the activity and after year 3, he or she is still not turning a profit. Does this mean that the client must ignore a loss in year 4 of the activity? To answer this question, let's examine two U.S. Tax Court cases addressing profit motive that have recently been decided, in which the court looked more at other factors than how many years of losses occurred before ruling against the taxpayers.

The first case is Hylton , T.C. Memo. 2016-234. Cecilia Hylton is the president of the Hylton Group, a successful real estate group founded by her father. Hylton Group's business is primarily developing real property, building and selling residences and apartment buildings, and managing commercial and residential properties in Virginia.

In 1998, Hylton started Hylton Quarter Horses (HQH), the main business of which is breeding, training, showing, and selling quarter horses. The predominant use for quarter horses is recreational riding, but they are also used in rodeos and horse shows and as working ranch horses.

In operating HQH, Hylton sought to raise the best quarter horses possible by adopting the following practices: getting the best mares; acquiring stallions to breed; breeding the mares; producing foals; and culling some of the foals and training the remainder. Hylton did not prepare a formal business plan when she started HQH, but the record includes an undated five-page written "business plan" that included a single-page income and expense projection and was prepared by her CPA in response to an IRS audit.

Sometime after 2005, Hylton moved some of HQH's breeding horses from Virginia to Texas, because it is "the premier show place" of quarter horses and the location of many breeding experts. She kept mares, colts, and her three stallions in Texas and contracted with three entities there. She usually traveled to Texas once a year for approximately one week.

During the years in issue, Hylton maintained a separate mailing address for HQH and a separate checking account, which was used to pay most of HQH's horse-related expenses—feed, trainers, veterinarians, and blacksmiths. She maintained a separate brokerage account for HQH, which was used to pay show fees, camping fees, and other horse-show-related expenses.

Hylton and her horse activity team would typically meet "once a month, sometimes more" to review HQH's invoices and receipts. No minutes or records were kept of these meetings. HQH's invoices and receipts were kept in files at Interstate Investment and would be provided to Hylton's tax return preparer to prepare returns.

For each of the years 2004 through 2011 HQH's expenses far exceeded its income, with almost $2 million in losses being incurred in two of those years.

The IRS determined that Hylton's ownership and operation of HQH was an activity "not engaged in for profit" under Sec. 183 and disallowed loss deductions claimed on her Schedules F, Profit or Loss From Farming , for those years. A taxpayer may not fully deduct expenses from an activity under Sec. 162 or 212 if the activity is not engaged in for profit (Sec. 183(a)). If an activity is not engaged in for profit, no deduction is allowed except to the extent provided by Sec. 183(b), which allows deductions only to the extent of gross income from the activity. Sec. 183(c) defines an activity not engaged in for profit as " any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212."

Deductions are allowed under Sec. 162 for the ordinary and necessary expenses of carrying on an activity that constitutes the taxpayer's trade or business. Deductions are allowed under Sec. 212 for expenses paid or incurred in connection with an activity engaged in for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income. Both Code sections require a profit motive, which is interpreted similarly as requiring profit to be a primary purpose (see Groetzinger , 480 U.S. 23 (1987), in which the Court held that a gambler had a primary purpose of making a profit and could therefore deduct his losses). 

Under Sec. 183(d), an activity that consists in major part of the breeding, training, showing, or racing of horses is presumed to be engaged in for profit if the activity produces gross income in excess of the deductions for any two of seven consecutive years. Because HQH did not produce income in excess of its deductions at any time, the presumption does not apply.

Regs. Sec. 1.183-2(b) provides a nonexhaustive list of the nine factors to determine whether an activity is engaged in for profit:

• Whether the taxpayer carries on the activity in a businesslike manner;
• The expertise of the taxpayer or his or her advisers;
• The time and effort expended by the taxpayer in carrying on the activity;
• The expectation that the assets used in the activity may appreciate in value;
• The success of the taxpayer in carrying on similar or dissimilar activities;
• The taxpayer's history of income or losses for the activity;
• The amount of occasional profits, if any, which are earned;
• The taxpayer's financial status; and
• Elements of personal pleasure or recreation.

All facts and circumstances are to be taken into account, and no single factor is determinative. The court examined each of these factors in turn and determined that Hylton did not participate in the quarter horse activity with a profit motive as her primary or dominant objective.

In Moyer , T.C. Memo. 2016-236, the facts are a little different, but the same principle applies. Calvin Moyer was educated as a chemist. In 1968, he joined DuPont's human relations department, where he trained DuPont employees in a variety of human relations topics.

Moyer took early retirement from DuPont in January of 1992 at age 50. Sometime after he retired, but before 2004, both Moyer and his wife began receiving DuPont pensions and Social Security benefits.

In 1992, DuPont outsourced much of its human relations training. Moyer and four other retired DuPont employees started a business to provide DuPont with human relations training services as outside contractors similar to those they had provided at DuPont. In 1994, after disagreeing on business strategy, the group agreed to cease doing business.

In 1994, Moyer and another person formed Strategic Learning Systems Inc. (SLS), an S corporation, which provided human relations training, including in-class human relations training on a variety of topics, and created several marketing brochures. These trainings were one-day workshops with DuPont—SLS's only client. DuPont constituted at least 80% to 90% of SLS's total business. In 1996, Moyer's partner left SLS, and Moyer ran it himself.

In 2005, SLS lost DuPont as a client and after 2006 it did not have any other clients. SLS had no gross receipts for 2010 through 2015.

SLS never kept books or records or maintained a budget. Moyer did not use books or records to evaluate the business's financial performance, nor did he file a timely tax return for SLS for the 2004, 2005, 2006, 2007, or 2008 tax years. In 2014, SLS filed delinquent Forms 1120S, U.S. Income Tax Return for an S Corporation , for those years in connection with previous Tax Court cases after the IRS had issued notices of deficiency to him (as SLS's shareholder) or to his wife (because she signed their joint return). Moyer acknowledged in his testimony that the preparation of the Forms 1120S in 2014 was the first time he ever determined SLS's annual expenses for tax or any other purpose.

Neither Moyer, his wife, nor SLS timely filed a federal income tax return for the 2009 tax year.

In 2012, the IRS mailed Mrs. Moyer a substitute for return and a notice of deficiency for 2009 using the married-filing-separately filing status and determining a deficiency of $9,006 along with penalties under Secs. 6651(a)(1), 6651(a)(2), and 6654(a).

On Oct. 20, 2014, the taxpayers submitted a joint federal income tax return for 2009, which itemized deductions on Schedule A, Itemized Deductions . Mr. Moyer also submitted a Form 1120S for SLS for 2009, which Mr. Moyer was the sole owner of during 2009. He admitted that SLS had not earned a profit since at least 2004.

SLS reported losses on Forms 1120S for 2004 through 2009

In determining whether Calvin Moyer had an actual and honest objective of making a profit, the court first considered whether he conducted SLS's activity in a businesslike manner, as described in Regs. Sec. 1.183-2(b)(1).

Moyer testified that he did not attempt to determine SLS's expenses until the IRS issued its notices of deficiency. He also testified that he is "not good at keeping records." SLS neither kept contemporaneous records nor maintained a budget.

Moyer had no books or records from which he could evaluate SLS's profitability. SLS also did not file income tax returns for 2004 through 2009 but filed returns only in connection with Tax Court cases, several years after they were due. Asked whether failing to timely file income tax returns is a good business practice, Moyer responded: "It certainly isn't." All of these facts indicate a failure to conduct the activity in a businesslike manner, which in turn indicates the lack of a profit motive.

Although Moyer may have originally had a profit objective when he incorporated SLS in 1994, this was no longer true during the years in issue, the court held. By 2009, SLS was merely a convenient device by which the Moyers could try to deduct otherwise nondeductible personal expenses.

Profit motive

In both cases, the Tax Court found that the taxpayer had failed to demonstrate a clear profit motive, but the court looked at more than the fact that the business had losses for a string of years. As the cases show, it isn't simply the number of years in which a company took a loss that determines whether a taxpayer carried on a business with a profit motive; a court will also look at the motivation behind the business and the manner in which the taxpayer ran the business in determining whether the taxpayer had a profit motive.

Craig W. Smalley , MST, is an enrolled agent who is the founder and CEO of CWSEAPA, PLLC, which provides accounting and financial services.

Sale of clean-energy credits: Traps for the unwary

Tax consequences of employer gifts to employees, top 8 estate planning factors for real estate, success-based fees safe harbor: a ruling raises concerns, pond muddies the waters of the mailbox rule.

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.

PRACTICE MANAGEMENT

CPAs assess how their return preparation products performed.

Understanding Profit Motive to Make the Most Out of Your Small Business

November 18, 2020 ben shabat.

Regardless of the industry you’re in, how long you’ve been in business, or how big your company is, your business should be profit-oriented.

The simple fact is, if your business isn’t making money, it’s losing money.

That’s why it’s essential to know what the profit motive is and how it works, so you can build a more profitable business!

Profit motive definition

Profit motive is the incentive to earn net financial gains by undertaking any sort of business activity. That applies to companies as well as individuals, whether they’re buying, selling, or taking part in any other sort of economic endeavor.

For small businesses specifically, profit motive can often be the primary driving force behind activities such as operational cost reduction , developing innovative ideas, coming up with new pricing strategies , taking tactical risks, or even completely overhauling the business plan.

In short: Profit motive is the goal of increasing profit for your business – something every business owner should be aiming for!

To some, the profit motive definition may sound like a selfish enterprise for a business to be focused solely on. But the fact is that many (if not most) of the great inventions over the past few centuries were made in an effort to earn a profit. That includes the invention of advanced medical technology, computers and smartphones, credit cards, nearly every home appliance, the automobile, and even the lightbulb!

Without the profit motive, our world would be a very different place from what we know it to be today.

If your business isn’t profit-oriented yet, now is the time to consider making the profit motive a key component of your business plan.

Using the profit motive to increase revenue

The profit motive is a natural driver for increasing your business’s revenues. When it comes to making changes to your business, the profit motive helps to simplify the decision-making process for you by essentially eliminating those ideas that don’t have a high likelihood of generating a profit.

For example, investing in renovating your physical storefront may be something you want to do and something that could potentially impact your sales, but if most of your business is conducted online then an expensive renovation might not be a profitable project for your business to undertake. On the other hand, if you took that money and invested it in improving your e-commerce advertising strategy , that project could stand a better chance of earning a net gain for your business.

In all likelihood, you’re likely already doing everything you can to spend the least amount of money and make the most earnings for your business. That’s the profit motive in action!

What some owners aren’t aware of is that the effort to increase your business’s profits actually makes an impact that goes beyond your own enterprise. On a broader scale, the profit motive works to influence the market’s prices, sometimes driving prices up sometimes driving them down – which, in turn, affects the decisions you make for your business. This is the classic economic model of supply and demand.

Let’s say, for example, you run a business that sells furniture and it costs $10 to purchase raw materials and another $10 to manufacture a dresser. That means the cost of production for each dresser is $20. The profit motive would dictate that you need to sell each dresser for more than $20 in order to optimize the return on your investment.

An important detail is that, even if your business is profit-oriented, you won’t be able to earn a net gain unless there are customers who are willing to pay more than $20 for a dresser. In other words, there must be a demand for your products/services in order for your business to successfully use the profit motive.

If there’s already a large supply of dressers of similar quality offered for $15 by your competitors, the profit motive would incentivize you to find ways to bring your costs down in order to make more sales, make a larger profit, and stay ahead of your competition.

On the flip side, if you don’t have many competitors and dressers are in short supply , that would mean a higher demand for dressers. In that case, customers would possibly be willing to pay $30 or even more for a dresser, allowing you to remain profit-oriented, make better earnings, and still be providing a valuable product to people at a price they’ll find reasonable.

In short: The profit motive acts as a shaper of the market and is also shaped by the market. Pay close attention to levels of supply and demand so that your business can stay profit-oriented.

Profit motive for e-commerce businesses

While there’s just one profit motive definition that applies to both ‘offline’ businesses and online businesses, there are a few ways that the profit motive can play out differently for e-commerce businesses specifically.

How the profit motive can influence e-commerce business decisions:

• Reduce overhead costs and switch to a dropshipping model so you can stop paying for inventory storage
• Start minimizing returns and refunds by developing top-notch customer support (Roughly 70% of customers say they’d stop paying for a product or service if they had even one bad experience with customer support )
• Invest in optimizing your supply chain so you can streamline processes, plan for demand, and negotiate for better supplier rates
• Measure profit and expenses to understand/increase your profit margins and see how to keep your excess expenses at a bare minimum
• Expand into multi-channel selling to engage with omnichannel customers who spend 30% more when they make purchases on average

Side note: If you run a Shopify store, you can measure your profits and expenses accurately with the BeProfit – Profit Tracker Shopify app (developed by Become ). After using the BeProfit dashboard to clearly understand your store’s finances, you can decide whether an e-commerce business loan is the right way to take your store to new heights.

Make the most of your business

Being profit-oriented is crucial to running a successful business. After all, if you’re not in business to make money, what are you in business for?

Okay, to be fair, the profit motive shouldn’t be the only incentive that keeps you in business. You’ll have to prioritize other qualities such as customer satisfaction, environmental awareness, and other social causes – otherwise, you may find yourself having a hard time building a strong business.

There’s a balance to be struck and it’s okay if it takes some time before you get it right. Just be sure not to forget how powerful the profit motive is and the role it plays in making the most out of your business!

Related Posts

What came first the job or the experience? This well-known chicken and egg scenario is…

Starting April 20, small businesses in need of short-term financial relief can turn to the…

With so many options out there, it can be difficult to choose the right small…

Small businesses in the USA can now gain free access to their Experian business credit…

[xyz-ips snippet=”Right-Banner”]

To get access to the full article answer 2 quick questions:

Get the full article right now.

Finding relevant lenders...

Searching Loan Offers For " "

We appreciate your interest in Become, to make the process easier and even faster Check if you qualify

What is Profit Motive (& How to Leverage it in Your Business)

If you want to make money, then you already know what the profit motive is.

But if that’s all there is to it, then why did we write this article? Because there’s so much more to know about the profit motive!

No matter if you’re just coming up with a business idea , or running a major enterprise, knowing the ins-and-outs of this critical concept will give you more power to control the direction of your business.

It’s not enough just to know the basic definition we gave above; get all the details below and learn how to make the most of the profit motive for your eCommerce business. Let’s go!

What is Profit Motive?

Profit motive is the goal that drives organizations and individuals alike to earn a net financial gain through their business activities. Without the profit motive, it’s questionable whether or not businesses would ever pay such close attention to things like:

• Carefully selecting a pricing strategy
• Finding new technologies to streamline operations
• Calculating return on ad spend (ROAS)
• Cutting overhead costs
• Measuring and tracking customer lifetime value

The common underlying reason for all of those very different objectives? The desire to make more money. That’s the profit motive definition.

You may have a question or two about profit motive, for example, “can’t ‘profit motive’ turn into ‘greed’?” Or “is it possible for the profit motive to blind us to other important goals in business?” In short, the answer is yes – but there’s much more to the profit motive that makes it worth pursuing.

And, just as is the case with most other tools, the profit motive can be good or bad depending on how you use it. Take a look below to discover the potential benefits and drawbacks of the profit motive, and a whole lot more that follows!

The Good Side of Profit Motive

• Maintains a healthy market by creating competition among sellers to keep costs and prices down, thereby saving money and also attracting customers
• Forces businesses to plan for the long-term, and to even tolerate low profits or losses for the better chances of having higher profits in the future
• Puts pressure on businesses to find more efficient ways of conducting business, which can help reshape industry standards for the better
• Creates an incentive for businesses to create new/better products

The Bad Side of Profit Motive

• Taken to the extreme, it can lead entire industries to engage in risky financial practices that can ultimately result in larger economic crises (think about the ‘housing bubble’ that burst and led to the Great Recession of 2008 )
• When held as the only important factor, the profit motive can convince businesses to cut product quality in order to save money, potentially endangering employees, consumers, or the environment in the process (find examples of corporations that put profit before safety in this Howard Law article titled They Knew and Failed To )
• Though it doesn’t typically apply to eCommerce businesses, there are situations where if profit is the only goal and all ethics go out the window, people who desperately need access to a product can be unjustly forced to pay exorbitant amounts for something that is produced for a small fraction of the price (for example, the infamous case of the pharmaceutical executive Martin Shkreli who monopolized a life-saving drug and then raised the price by more than 4,000%)

The downsides to profit motive can be a bit nerve racking to read about, but those are fairly extreme cases and aren’t the norm, particularly not in the eCommerce industry. Still, it’s good to know where the pitfalls are so that you can steer clear of them if need be.

With those warning signs in place, let’s discuss the real reasons why you would want to maximize profit for your e-commerce business.

Why Would You Want to Maximize Profit?

Simply put, the reason you would want to maximize profit for your online store is because more money gives you more options and opportunities to strengthen your business.

The next question you might want to ask is “what options and opportunities open up when I have more profit” – and we’re glad you asked!

When you’ve found ways to increase profit for your business , the results can include having an easier time:

• Expanding your business into new market areas
• Attracting greater numbers of high-quality leads
• Incorporating technologies to streamline operations
• Offering new types of products or services
• Diversifying your e-commerce advertising strategy

To reiterate, the most apparent reason you have for wanting to maximize your ecommerce profits is to make your business bigger and better. The more you optimize your store, the larger your profits can grow, and the more you can optimize.

As you can see, when used the right way, profit motive can be the force that turns the wheels of success for your online business. But, how do you calculate profit margins for your business anyway? After all, if you don’t measure profitability, how can you know how it changes over time?

Profit Motive 101: How to Measure Profit

Measuring profit for your ecommerce business isn’t tough, but does require attention to detail. Plus, if you really want to improve your profits, you’ll need to track how your profit margins shift and change over time. That means measuring your profitability on a regular basis, ideally at least once a month.

There are several ways you can measure your profit:

• Gross profit margin is used as a gauge for how well your business is handling the direct costs associated with generating sales

• Operating profit margin is a measurement of how well a business’s secondary investments (e.g. (research, marketing, administrative expenses) are paying off

• Net profit margin is what people typically think of when they hear the words ‘profit margin’; it calculates the relationship between net profits and net sales

However you do it, measuring profit is a key step toward growing your profits! Keep your eye on the prize by calculating your profit margins on a regular basis, analyzing the data you gather, finding trends, and adjusting for better margins as you go.

Profit Motive Examples in eCommerce

Profit motive examples in eCommerce are plentiful! You only need to take a glimpse into the world of online retail operations to understand how the drive to earn a profit has helped that industry bloom over recent years.

As a matter of fact, global retail e-commerce sales have not only been on an upward trajectory, but they are projected to exceed $5.4 trillion by 2022 – whoa!

Here are our top three picks for best profit motive examples in eCommerce:

Founded in 2013, MVMT is (well, was ) one of the biggest names in e-commerce. They rose quickly to be valued at $90 million in less than 5 years, ultimately getting acquired by Movado for $300 million.

How did they rise to those heights in such a competitive niche? Facebook Ads!

They went all-in and ramped up what they saw was already working for them. While it sounds like a roll of the dice, it was anything but that. More likely than not, they ran a SWOT analysis , realized that there were a number of specific campaigns that had been performing particularly well, and took it up a few notches.

The results? Well, we already told you that – big profits for the founders! Their story would not have happened if it had not been for the profit motive.

Launched in 2011, BarkBox exceeded $25 million in revenue in just two years of operating. In December 2020 they merged with Northern Star Acquisition Corp. and grew their value to roughly $1.6 billion.

How did this subscription-based business turn dog toys and snacks into such a success? Personalization!

Not only does each month’s box come with a variety of new doggy goodies, but the products are customized according to the size & breed, personal needs like allergies, and even behaviors. They’re able to provide such a great service by personally calling and emailing a select number of their customers each month.

The insights they gain from going the extra mile are what allow BarkBox to be such a strong brand within the pet supply arena. Their motivation? You guessed it: profits!

3. Dollar Shave Club

Also started in 2011, Dollar Shave Club was founded as a cost-effective alternative to purchasing expensive razor blades from the local pharmacy. A few short years later, they expanded their product line to include a broader range of men’s grooming supplies. By 2016, they were acquired by the industry giant Unilever for a whopping $1 billion in cash .

What does Dollar Shave Club do differently? A few things.

First, they make buying razors easier online than in-store. Second, they made their subscription plans flexible, and even offer their services to people who don’t shave! Go figure! Third, and perhaps most importantly, Dollar Shave Club invests real effort into retention.

They pay such close attention to keeping customers coming back that they’re able to retain a remarkable 1/4 of their subscribers for 4 years . For those of you not so literate in ecommerce metrics, that’s an outstanding retention rate. And it’s all thanks to their bottom line goal of – yes – seeking profit.

Profit Motive: 6 Best Ways to Increase Margins

Ok with a solid understand of profit motive under our belts, let’s look at six ways you can maximize your profits and scale your business:

1. Track profits & expenses

Getting a clear understanding of your store’s data can be difficult, particularly when you spend so much of your time taking care of day-to-day tasks. For those of you who run a Shopify store, the BeProfit profit tracker app is simply one of the best ways to improve your online business’s profits.

With BeProfit you can finally make sense of your data with an easy-to-digest dashboard that tracks and analyzes your business’s profits, expenses, and more. With the advantage of BeProfit, you can jumpstart your journey to become more profitable.

2. Reduce your overhead costs

Maximizing revenue and profits starts starts with knowing your overhead costs. These are expenses like domain hosting, utilities, insurance, shipping, transaction fees, equipment (and maintenance of it), and more. The costs included will vary depending on the type of e commerce revenue model you’re running, how long you’ve been operating, and so on.

Regardless of the specifics of your business, you should run an audit of your overhead costs and reduce them wherever possible (without making big sacrifices on your product or service quality).

3. Remove ‘unnecessary’ products or processes

You’ll always have some products that end up selling better than others. In fact, you may actually aim for that in order to nudge your customers to purchase more profitable items.

Just make sure that you’re not losing money by keeping stock of items that don’t sell! Review your inventory list and trim down on some of those ‘extra’ products that haven’t sold in a while. You can also replace them with other items that are cheaper to keep in stock.

4. Revise your pricing strategy

Whether you’ve been in business for a few months or a few years, it’s never a bad time to take another look back over your pricing strategy . When you first started you may have adopted a pricing strategy that sacrificed profits for better sales volume. As your business grew, you may have switched your pricing to be geared towards increasing average order value. And as your business got more mature, you may have reverted back to pricing strategies that are more competitive.

Wherever you are in your business journey, reviewing your store’s pricing is a good way to increase your profitability.

5. Smooth out operational wrinkles

Streamlining your business operations is closely related to cutting overhead costs. However, it applies more broadly across different aspects of your eCommerce store. The primary goal of streamlining is to reduce friction points that slow the gears of your business. Those friction points could include weak landing pages, poor customer support, long shipping times, problematic return processes, and so on.

Addressing those problem areas will have the secondary effect of reducing key performance metrics like:

• customer acquisition cost
• cost of goods sold
• customer churn rate, and so on – thereby increasing profit margins.

6. Increase customer retention

If you want to grow a profitable online business, it’s crucial that you know what your business’s repeat purchase rate is. More sales means more revenue, which ideally leads to more profit. Aside from that, increasing your number of repeat customers may also allow you to reduce your e-commerce marketing budget without having a negative impact.

Simply put, greater customer retention means more profit for your business.

What is Your Profit Motive?

The profit motive exists in each and every eCommerce business owner, whether they know it or not! Get familiar with knowing where the profit motive comes into play, how to employ it wisely, and which ways to increase profit. With those bases covered, you’ll set your business up for a grand slam.

Author Bio:

This is a guest post from Benjamin Shabat. Benjamin is a content specialist at BeProfit , where he works to deliver useful and relevant information to small online business owners. BeProfit is dedicated to helping e-commerce stores grow by giving them true control over their business’s data.

Relevant Blogs

eCommerce AI: 7 Ways Artificial Intelligence is Transforming eCommerce

The Impact of Post-Purchase Upselling in 2023 (Report)

The Best Products to Sell on Shopify: 13 Sure-Fire Ideas to Make Money in 2024

Start your free trial.

• Search Search Please fill out this field.
• US & World Economies
• Economic Terms

Profit, the Motive for Capitalism

2 Foolproof Ways to Increase Profit

Types of Profit

Profit formula, profit motive, two foolproof ways to increase profit, how profit drives the stock market, frequently asked questions (faqs).

Profit is the revenue remaining after all costs are paid. These costs include labor, materials, interest on debt, and taxes. Profit is usually used when describing the activity of a business. But everyone with an income has profit. It's what's left over after paying the bills.

Profit is the reward to business owners for investing. In small companies, it's paid directly as income. In corporations, it's often paid in the form of dividends to shareholders. 

When expenses are higher than revenue, that's called a "loss." If a company suffers losses for too long, it goes bankrupt.

Key Takeaways

• Profit is the income remaining after settling all expenses.
• Three forms of profit are gross profit, operating profit, and net profit.
• The profit margin shows how well a company uses revenue.
• Profit drives capitalism and free-market economies.
• Increasing revenue and cutting costs increase profits.

Businesses use three types of profit to examine different areas of their companies. They are gross profit, operating profit, and net profit.

Gross Profit

Gross profit subtracts the cost of goods sold (COGS) from total sales. Variable costs are only those needed to produce each product, like assembly workers, materials, and fuel. It doesn't include fixed costs, like plants, equipment, and the human resources department. Companies compare product lines to see which is most profitable.

Operating Profit

Operating profit includes both variable and fixed costs. Since it doesn't include certain financial costs, it's also commonly called "EBITDA."

EBITDA (which excludes depreciation) is much more commonly used than EBITA, which includes depreciation.

That stands for  Earnings Before Interest, Tax, Depreciation, and Amortization . It's the most commonly used, especially for service companies that don't have products.

Net profit  includes all costs. It's the most accurate representation of how much money the business is making. On the other hand, it may be misleading. For example, if the company generates a lot of cash, and it's invested in a rising stock market, it may look like it's doing well. But it might just have a good finance department and not be making money on its core products.

Companies analyze all three types of profit by using the profit margin . That's the profit, whether gross, operating, or net, divided by the revenue.

The profit margin reveals how well the company uses its revenue.

A high ratio means it generates a lot of profit for each revenue dollar. A low ratio means the company's costs are eating into its profits. Ratios differ according to each industry.

Profit margins allow investors to compare the success of large companies versus small ones. A large company will have a lot of profit due to its size. But a small company might have a higher margin, and be a better investment because it is more efficient.

Margins also allow investors to compare a company over time. As the company grows, its profit will grow. But if it's not becoming more efficient, its margin could fall.

Profit is calculated by the following formula:

π = R - C

• Where π (the symbol for pi) = profit
• Revenue = Price (x)
• C = Fixed cost, such as cost for a building +Variable cost, such as the cost to produce each product (x) 
• x = number of units.

For example, the profit for a kid selling lemonade might be:

π = $20.00 - $15.00 = $5.00

• R = $0.10 (Price for each cup) (200 cups) = $20.00
• C = $5.00 (for wood to build lemonade stand) + $.05 (for the cost of sugar and lemons per cup)(200 cups sold) = $5.00 + $10.00 = $15.00

The purpose of most businesses is to increase profit and avoid losses. That is the driving force behind  capitalism and the free market economy . The profit motive drives businesses to come up with creative new products and services. They then sell them to the most people. Most important, they must do it all in the most efficient manner possible. Most economists agree that the profit motive is the most efficient way to allocate economic resources. According to them, greed is good.

There are only two ways to increase profit.

Increase Revenue

Revenue can be increased by raising prices, increasing the number of customers, or expanding the number of products sold to each customer.

Raising prices will increase revenue if there is enough demand. Customers must want the product enough to pay higher prices. Increasing the number of customers can be expensive. It requires more marketing and sales. Expanding the number of products sold to each customer is less expensive. The trick is to understand your customer well enough to know which related products they might want.

Lowering costs is a good method up to a point. It makes a company more efficient and thus more competitive. Once costs are down, the business can reduce prices to steal business from its competitors. It can also use this efficiency to improve service and react more quickly.

The biggest budget line item is usually labor.

Companies that want to quickly increase profits will lay off workers. This is dangerous. Over time, the company will lose valuable skills and knowledge. If enough companies do this, it can lead to an economic downturn. There wouldn't be enough workers earning good wages to drive demand. The same thing happens when businesses outsource jobs to low-cost countries.

Profits are also known as "earnings." Public corporations that are listed on the stock market announce them every three months in quarterly reports. That occurs during  earnings season . They also forecast future earnings.

Earnings season significantly affects how the stock market does. If earnings are higher than forecast, the company's stock price generally rises. If earnings are lower than expected, prices will generally drop.

Earnings seasons are especially important to watch in the transition phases of the business cycle . If earnings improve better than expected after a trough, then the economy could be coming out of the recession. It's headed into the expansion phase of the business cycle. Poor earnings reports could signal a recession . 

What is the difference between revenue and profit?

Revenue is the total income that a company earns in a specific period. Profit is income minus expenses, operating costs, and debt payments.

Is profit the most important thing in business?

Various businesses will articulate profit's place in their overall mission differently. Regardless of where it fits into the mission statement, profit is fundamentally important for a business's success.

What is a profit and loss statement?

A profit and loss statement , typically known as a "P&L" or "income statement," is a summary of all of a business's income and expenses in a specific period. It's one of the most important financial documents a business generates, as it's regularly used by investors and managers to evaluate a business's financial health.

IG. " Earnings Season ."

Internal Revenue Service. " Business Activities ."

Planning for Profit: How to Build Profitability Models

If you want to understand the profitability of your business—now and for the future—you need forecasting methods that consider more than just revenue.

Profitability models matter for businesses of all sizes. They illustrate not only how you plan to drive revenue for your business, but how you will make it profitable.

You may be familiar with business models and revenue models, but less so with profitability models. So let’s dive into what a profitability model is, why it’s important, and how to create one.

What Are Profitability Models?

A profitability model, or profit model, is a plan or prediction (based on financial data) for how your business will make a profit. It incorporates sales, cost of goods sold (CoGs), overhead (fixed and variable costs), other expenses, and debt.

A good profitability model can help you make financial forecasts and adapt to changing operating conditions. For instance, if you want to hire team members or you have to increase production costs, with a solid profitability model in place you can account for these variables and forecast your profit.

Related Articles

Profitability Model vs. Revenue Model

Revenue refers to your company’s total earnings, whereas profit is what’s left after you subtract costs from your sales total.

So, simply put, a revenue model explains your strategy for generating sales, without taking into account costs and liabilities.

Some businesses might choose to focus on a revenue model rather than a profit model if they’re setting aside their goal of earning a profit in order to grow their business. At those times, income streams and expansion opportunities may be more important.

Profitability Model vs. Business Model

Both revenue models and profit models are components of your broader business model.

A business model is a wide-ranging document that takes into account total earnings and profitability, but also other things like value proposition, competitive strategy, target markets, and potential problems and solutions. It can focus on growth only and not weigh heavily on profitability.

You’ll most often need a business model to get a loan or investors to put their money into your company.

How Do You Create a Profitability Model?

A profitability model is created in much the same way as a business model. But the components differ. The #1 thing to consider when drafting your profitability model is that you’re making multiple predictions based on potential changes in your revenue and costs.

This means you’ll be looking at what your revenue sources are, how you’ve structured your pricing, whether market saturation or capacity constraints impact your profit, and which fixed and variable costs your business has.

The best approach is to look at financial results on a quarter-by-quarter basis. This will give you an accurate look at how your profit has evolved.

What to Include in Your Profitability Model

The following are common core components of a profit model, and how to calculate them.

1. Profit Margin

Aiming for higher profit margins will result in a higher return on equity. There are several ways to calculate your profit margin.

2. Asset Turnover

Your asset turnover ratio gives you a clear picture of how efficiently you’re using your assets to generate sales revenue. For every dollar in assets, it shows you exactly how many dollars in revenue you’re generating.

asset turnover ratio = net sales ÷ average total assets

3. Leverage

To know how profitable you are, you’ll need to know how much debt you use to run your business in relation to your equity (assets minus liabilities).

debt-to-equity ratio = (short term debt + long term debt) ÷ total equity

4. Return on Equity

This financial ratio is a measure of your returns for creditors and investors. It indicates the success (or failure) of the business owner or owner’s investment in the business.

return on equity = net income ÷ total equity

To determine your current and past profitability , you can use our 5-step checklist . To keep track of your profitability on an ongoing basis, consider profitability reporting tools in FreshBooks. This will show you whether your billable projects are compensating for your investments.

What Are 3 Common Types of Profit Models?

Most businesses will want to look into one of the following 3 methods for predicting profitability.

1. Historical Model

The historical model implies looking at your past yearly growth rate to predict your company’s future profitability. For accurate results, you’ll want to consider possible future expenses that didn’t contribute to past data.

2. Analytic Model

3. Trends-Based Model

Market trends like new demands or changing customer views can impact your future profitability. Considering trends can make for a more accurate profit forecast. For example, if trends indicate more competitors could be taking some of your market share you’ll want to make some adjustments to your forecasts.

No one model works for every business at every stage. To find out which profitability model suits your business, consider hiring an accountant who offers these types of advisory and forecasting services.

Move From Profit Modeling to Profitability

Remember it can take a business as many as 2 to 3 years to become profitable. You may also need to change the model based on learnings from past profitability.

By taking into consideration costs and liabilities, and looking at different types of profitability models, you’ll have a much better picture of the steps you need to take to achieve your business goals.

Written by Alexandra Cote , SaaS Digital Marketer and Content Consultant

Posted on October 27, 2021

This article was verified by Janet Berry-Johnson , CPA and Freelance Contributor

Freshly picked for you

Thanks for subscribing to the FreshBooks Blog Newsletter.

Expect the first one to arrive in your inbox in the next two weeks. Happy reading!

How it works

For Business

Join Mind Tools

Article • 9 min read

The Business Motivation Model

Preparing a resilient business plan.

By the Mind Tools Content Team

Have you ever had to develop a business plan for your organization or for a new business?

If you have, then you know how difficult it can be to get it right. There are many different elements to consider, and it can be easy to overlook factors that may have a positive or negative effect on your success.

This is where it can be helpful to use the Business Motivation Model. This tool offers a practical way of sense-checking and optimizing your plan. By using it, you can develop a resilient business plan – one where you've explored the impact of internal and external influencers, and have adjusted the plan appropriately.

In this article, we'll look at what the Business Motivation Model is, and we'll explore how you can use it to improve business planning.

About the Model

The Business Motivation Model was originally developed by the Business Rules Group, a non-commercial consulting firm, in the late 1990s. Its goal was to help people prepare business plans in an ordered, efficient, properly-organized way.

Put simply, the Business Motivation Model helps you think about why you're creating a business plan, identify the essential elements that you need to include, and understand how all of these factors interact with one another. This helps you ensure that your business plan is robust and internally consistent, that it fairly explores the impact of the plan, and that it takes your business in a direction that is useful and valuable.

The model is not only useful for writing traditional business plans – you can also use it to plan projects and new processes.

The name of this model, "The Business Motivation Model," is not particularly helpful. Don't worry too much about this.

There are four main elements to the model:

• Ends: This is what you want to accomplish with your plan. "Ends" consist of a Vision, Goals, and Objectives. (These are defined in a slightly differently way from the vision, goals, and objectives that we describe elsewhere within Mind Tools – more on this later!)
• Means: These describe how you're going to achieve the Ends. They include your mission, your overall strategy, and the organizational policies and rules that will affect the achievement of your Ends.
• Influencers: This is where you assess the people or things, inside or outside your organization, that can affect your Ends or Means.
• Assessment: This is where you assess your Influencers, and then review and adjust your Ends and Means as necessary.

As you can see in figure 1, below, the model isn't linear – once you've analyzed and assessed Influencers, you review your Ends and Means, and update them until all elements are consistent and well-aligned.

Figure 1 – The Business Motivation Model

We'll now look into each element in more detail.

This is where you identify your final, desired result. You can start at this stage, but you'll probably find it more effective to work on your Ends and Means at the same time.

Begin by writing a vision statement . This is a human- or idea-centered statement that expresses what the organization wants to do or become in the long-term. Our article on Mission Statements and Vision Statements explores how to create powerful vision statements.

In this model, creating a mission statement comes under the Means, but it's often more effective to create mission and vision statements at the same time.

Goals and Objectives

You then need to set the Goals and Objectives that will help you achieve your vision.

In the Business Motivation Model, a Goal is long-term, qualitative (rather than quantitative), general (rather than specific), and ongoing. For example, "Answer telephone calls more quickly," or "Offer a friendly service to customers."

You must continually satisfy your goals in order to reach your Vision.

Objectives, on the other hand, need to be attainable , measurable , and time-based . For example, "By June 2014, we will answer 90 percent of telephone calls within 30 seconds," or "Within two years, we will achieve an average score of at least 85 percent on customer satisfaction surveys."

When achieved, these objectives will then help you reach your Goals.

The Means is the "how" of the model – how are you going to achieve the Ends you've identified?

Your Mission

To begin identifying your Means, write a mission statement . The purpose of this is to identify what you'll be doing on a day-to-day basis to achieve your Ends.

The model says that your mission statement should contain at least these three elements:

• An action part. For instance, "supply."
• A product or service part. For instance, "help-desk support."
• A market or customer part. For instance, "customers across North America."

For example, your mission could be "To provide IT help-desk support by telephone to customers in Canada and The United States."

You then need to develop and identify a Strategy for achieving your Ends. Don't skimp on strategy development – this is an extremely important process, and is key to the long-term success of your plan. (Our article on Developing Your Strategy looks in-depth at identifying, and then selecting, strategic options.)

At this stage, you'll also need to identify Directives. These are rules or organizational policies that will directly affect what you want to achieve.

For example, your organization may have a set budget for marketing that will affect how you build awareness for your brand, or your organization may only supply products to retailers within a 50-mile radius of its showroom. These would both affect your ability to compete in certain areas.

Remember that Directives can have a positive, as well as negative, effect on your overall plan.

3. Influencers

Here, you need to identify and assess your Influencers. These are people and factors that can affect your Means and End. They can be both internal and external to your organization.

Internal influencers can include:

• Infrastructure.
• Organizational values.
• Shareholders.
• Organizational culture.

External influencers can include:

• Technology.
• Business environment.
• Competitors.
• Media, and the wider community.
• Industry regulations.
• Government policies.
• Commonly-held assumptions.

To identify Influencers effectively, use PEST Analysis (to identify external factors) and Stakeholder Analysis (to identify the people who can affect your organization's success).

4. Assessment

Once you've created your list of Influencers, you then need to assess each one. Here, you look at each of your Influencers, and identify how they're going to impact your Ends and Means.

One way of doing this is to use SWOT Analysis – list each Influencer, then ask yourself whether they present a strength, weakness, opportunity, or threat to your Ends or Means. Then, identify the potential impact of Influencers that present a weakness or threat. (This can initially sound like a strange use of SWOT Analysis, but it's surprisingly effective.)

Tools such as Impact Analysis and Risk Analysis are great for helping you understand threats in more detail.

Once you've assessed each of your Influencers, review your Ends and Means, and update if appropriate.

Bear in mind that you may need to go through each element of the model several times, because any changes to one element will likely affect others. For instance, if you update your Ends, this will have a knock-on effect on your Means, and, possibly, your Influencers.

The Business Motivation Model helps you sense-check why you're creating a business plan, which elements you need to include, and how all of the factors within the plan relate to one another.

By using it, and by iteratively adjusting the plan to take account of the influences upon it, you can develop a more robust, resilient plan for your business – one that delivers the benefits that you want with a minimum of "unexpected" consequences.

There are four main elements to the Business Motivation Model:

• Influencers.
• Assessment.

Begin by identifying the Ends (your desired, end result) and your Means (how you're going to achieve this result).

Then, identify Influencers; these are any people or any things that could have an effect on your Means and Ends.

Last, you conduct an Assessment; this is where you judge your Influencers to determine what kind of impact they'll have on your Means and Ends. From there, you can review your Ends and Means, and update as required. Remember that you may need to work through each element several times.

The Business Rules Group (2010), 'The Business Motivation Model: Business Governance in a Volatile World,' Release 1.4.

You've accessed 1 of your 2 free resources.

Get unlimited access

Discover more content

Entrepreneurial skills.

The Skills You Need to Start a Great Business

Understanding Business Acumen

How to Develop Your Business Instincts

Add comment

Comments (0)

Be the first to comment!

Gain essential management and leadership skills

Busy schedule? No problem. Learn anytime, anywhere. 

Subscribe to unlimited access to meticulously researched, evidence-based resources.

Join today and save on an annual membership!

Sign-up to our newsletter

Subscribing to the Mind Tools newsletter will keep you up-to-date with our latest updates and newest resources.

Subscribe now

Business Skills

Personal Development

Leadership and Management

Member Extras

Most Popular

Latest Updates

Better Public Speaking

How to Build Confidence in Others

Mind Tools Store

About Mind Tools Content

Discover something new today

How to create psychological safety at work.

Speaking up without fear

How to Guides

Pain Points Podcast - Presentations Pt 1

How do you get better at presenting?

How Emotionally Intelligent Are You?

Boosting Your People Skills

Self-Assessment

What's Your Leadership Style?

Learn About the Strengths and Weaknesses of the Way You Like to Lead

Recommended for you

The outsiders.

Will Thorndike

Expert Interviews

Business Operations and Process Management

Strategy Tools

Customer Service

Business Ethics and Values

Handling Information and Data

Project Management

Knowledge Management

Self-Development and Goal Setting

Time Management

Presentation Skills

Learning Skills

Career Skills

Communication Skills

Negotiation, Persuasion and Influence

Working With Others

Difficult Conversations

Creativity Tools

Self-Management

Work-Life Balance

Stress Management and Wellbeing

Coaching and Mentoring

Change Management

Team Management

Managing Conflict

Delegation and Empowerment

Performance Management

Leadership Skills

Developing Your Team

Talent Management

Problem Solving

Decision Making

Member Podcast

Brought to you by:

Strategy Execution Module 5: Building a Profit Plan

By: Robert Simons

This module reading describes how to build a profit plan to reflect the strategy of a business in economic terms. After introducing the profit wheel, cash wheel, and ROE wheel, the module illustrates…

• Length: 34 page(s)
• Publication Date: Oct 6, 2016
• Discipline: Strategy
• Product #: 117105-PDF-ENG

What's included:

• Teaching Note
• Educator Copy

$4.95 per student

degree granting course

$8.95 per student

non-degree granting course

Get access to this material, plus much more with a free Educator Account:

• Access to world-famous HBS cases
• Up to 60% off materials for your students
• Resources for teaching online
• Tips and reviews from other Educators

Already registered? Sign in

• Student Registration
• Non-Academic Registration
• Included Materials

This module reading describes how to build a profit plan to reflect the strategy of a business in economic terms. After introducing the profit wheel, cash wheel, and ROE wheel, the module illustrates how to use a profit plan to assess the viability of different strategies and evaluate whether sufficient resources will be available to implement the chosen strategy. The module examines in detail how to develop accurate estimates for sales, profit, cash flow, asset turnover, investment in new assets, and return on equity. The discussion then turns to how to gather and analyze data and the effects of sensitivity analysis on predictions. The module concludes by illustrating the critical role of a profit plan in setting goals, communicating expectations to the investment community, and evaluating the performance of individual managers and businesses. While this module is designed to be used alone, it is part of the Strategy Execution series. Taken together, the series forms a complete course that teaches the latest techniques for using performance measurement and control systems to implement strategy. Modules 1 - 4 set out the foundations for strategy implementation. Modules 5 - 10 teach quantitative tools for performance measurement and control. Modules 11 - 15 illustrate the use of these techniques by managers to achieve profit goals and strategies. View the full Strategy Execution series at: hbsp.harvard.edu/strategy-execution .

Learning Objectives

Demonstrate how to build a profit plan-the primary tool that managers use to describe their business strategy in economic terms. Explore the three wheels of profit planning: the cash wheel, the profit wheel, and the ROE (return on investment) wheel. Show how managers develop the wheels and how they are used to set goals, track performance, and make decisions. Explain how the profit wheels can be used to test the company's strategy.

Oct 6, 2016 (Revised: Feb 22, 2019)

Discipline:

Harvard Business School

117105-PDF-ENG

We use cookies to understand how you use our site and to improve your experience, including personalizing content. Learn More . By continuing to use our site, you accept our use of cookies and revised Privacy Policy .

Owning a business is an exciting journey filled with highs and lows. Establishing a clear, profit-driven strategy is one key factor that can tilt the scales toward success. The recent tax court case, Gregory v. Commissioner, highlighted how blurring the lines between hobbies and genuine business ventures can have significant financial implications. Not only did this case underscore the importance of clear delineation, but it also highlighted the potential tax pitfalls of not doing so. In this article, we’ll cover how to ensure your venture is seen as a legitimate business and not just a pricey pastime.

Understanding the Hobby Loss Conundrum

The “hobby loss” rules have made waves in the tax world, affecting many business activities, from horse breeding to charter boat operations and even Airbnb rentals. Only activities classified as what the IRS refers to as “engaged in for profit” are able to deduct expenses associated with the work. In other words, to be considered “engaged in for profit” means you set out with the intention of your business and activity to generate a profit. If the IRS determines the activity was not “engaged in for profit,” your ability to deduct associated expenses will be impacted. If your venture is potentially labeled a hobby, you could find yourself in a situation where you’re reporting full income without the benefit of crucial deductions.

In the case of Gregory discussed above, the business owner reported gross income equaling the business expenses, yet he couldn’t use the deductions due to the hobby classification. As a result, the ruling reduced his profit and increased the business’s taxes due, which is not the ideal scenario for any business owner.

Establishing a Profit Motive

The U.S. Tax Court and the Internal Revenue Service use a range of factors to determine whether a business truly has a profit motive. Remember, while starting a business around your passion is fantastic, the profit motive is what separates it as a sustainable business rather than an expensive hobby.

Four steps can make it a clear and recurrent theme in your business strategy.

• Clear Records: Maintain precise and consistent bookkeeping. Separate business from personal expenses and keep a dedicated business bank account. This is more than just good practice; it’s a way to show that you operate in a business-like manner.
• Consult the Experts: Engage with industry consultants and tax professionals. Their insights can help steer your ship clear of any hobby loss icebergs, and even a history of losses can be justified if you have expert testimonies or guidance.
• Adapt and Thrive: Continually evolve your business strategy to ensure profitability. Being adaptable is key in the ever-changing world of business. This means adapting your operations and ensuring legal formalities and structures are in place.
• Written Plans are Gold: Experience suggests a documented plan to achieve profitability may be a game-changer. This isn’t just paperwork—it’s a roadmap to success and could be your best defense against being recharacterized as a hobby.

Why This Matters to Business Owners

When your business displays a consistent profit-driven strategy, you’re protecting yourself from potential tax pitfalls and setting your venture up for long-term success. Adhering to these guidelines reflects solid business judgment that can benefit your company in the long run. Remember the consequences: a misclassified hobby can lead to reporting full income without deducing the expenses.

Take the Next Step

Are you currently engaged in a business activity that could toe the line between hobby and legitimate venture? Chat with your tax advisor. Discuss your profit-driven strategies and plans, taking lessons from the Gregory case. Continual reflection and adaptation, even in the face of enjoyable or recreational activities, are the keys to solidifying your business’s market placement.

The line between passion and profit is a fine one. Yet, with a clear, profit-driven strategy and awareness of nuances like the “hobby loss” rules, you can ensure your business thrives in today’s competitive marketplace. Stay informed, stay adaptable, and always keep that profit motive at the forefront of your business operations.

Treasury Circular 230 Disclosure

Unless expressly stated otherwise, any federal tax advice contained in this communication is not intended or written to be used, and cannot be used or relied upon, for the purpose of avoiding penalties under the Internal Revenue Code, or for promoting, marketing, or recommending any transaction or matter addressed herein.

• CEO and Chairperson
• Focal Points
• Secretariat Staff

Stakeholder Engagement

• GEF Agencies
• Conventions
• Civil Society Organizations
• Private Sector
• Feature Stories
• Press Releases
• Publications

The purpose of business? It’s not just about money

By André Hoffmann, vice-chairman, Roche Holding Ltd

Business has shaped the world in pursuit of profit and growth with an apparent disregard for consequences, other than financial ones. The process of value creation has been extraordinarily successful in creating wealth through satisfying consumers’ needs and wants. The world’s fortune is at a historical peak: its economy has never been so highly valued. So, by some measures, the model can be considered a success. But at what cost?

It is increasingly evident that the focus on profitability has led to the neglect of two other dimensions: the environment and the fabric of society. We are rapidly  losing species  and natural areas. Income inequality is rising, with the latest figures showing a historic high. The world is getting richer, but its wealth is not properly redistributed.

The UN millennium goals were successful at lifting more than a billion people out of extreme poverty, and have been succeeded by the sustainable development goals, which provide us with a framework for building a better world. But, while such goal setting remains a successful mechanism, there is more to do.

A sole focus on short term gains will not drive the change we need. We must think in the longer term. This is particularly important in a one planet system. Where will growth come from when planetary boundaries have been reached?

Nobody likes business any more. The profit motive, once a desirable incentive to wealth creation, is now seen as something evil, and a source of injustice and inequality. There is a need to change the model, an imperative to reassess the purpose of business, not just to satisfy shareholders and accountants but also to work in tune with all relevant stakeholders.

The successful company is no longer one that just makes money. A financial return is a necessary condition, but it is not sufficient. Dividends will keep shareholders happy but what about other stakeholders?

We have to remember that a company is not just a balance sheet. It is also customers, local and global communities and society – and the natural environment, the world in which we live. These long neglected factors must be carefully considered.

So, there is a need for change. True sustainability will only be assured if there is a proper investment return in the three dimensions of business: financial, social and environmental.

This intuitive finding has long been around, but few companies have been able to implement it. Financial markets focus exclusively on financial reporting. If all that matters is immediate profitability how can one justify investing in long term projects? In a family-owned enterprise, trans-generational value creation may come naturally. But this is difficult to replicate in a publicly quoted company where the voice of owners is only answered in term of dividends.

Companies and their performance should be evaluated in terms of their net contribution to society, giving back at least as much as they take. There are many ways in which they can do this. Training employees, promoting ethical values, integrating ethnic minorities and ensuring fair pay for all are only a few of the obvious activities which need to be recognised and valued. In environmental terms, reducing ecological footprints and better managing consumption and the natural resources cycle could work as useful metrics, among many others.

None of this is rocket science, but it is usually met with stock answers such as “we cannot afford it” or “shareholders would not approve, as it has an impact on the margin”. I would argue that we cannot afford not to make the change if we care about people and planet as well as profit.

These transformational changes will not take place without the emergence of a new generation of leaders able to change the current management paradigm. Under such enlightened stewardship, companies will again be able to thrive in the dual and common interest of humanity and the planet and evolve a more appropriate response to the current world challenges.

The new technology tsunami, currently underway, could provide an opportunity for a successful reboot. Its disruption to the existing business model must be harnessed for good. If instead it is just seen as a new opportunity for business as usual the situation will become even worse. Company management should be rewarded along the lines of people, planet and profit.

This would encourage companies to repair part of the damages sustained to the global commons since the beginning of the industrial age two centuries ago – and to develop a stable growth engine which will produce the necessary return on investment without, literally, costing, the earth. Let us look towards the corporate sector as a part of the solution and no longer as the problem.

Today, as in the past, growing wealth and prosperity is needed for a properly functioning system where humans can live sustainably and in harmony with nature. Providing this could be the new purpose for business – especially if we truly realise that it is not the way you spend money that matters but the way you make it.

Three steps to setting business targets for a healthy Earth

What is the point of agribusiness, if it doesn’t do good, related news, empowering the next generation to succeed in high stakes negotiations.

Building small island resilience through shared learning: insights from the Caribbean

Good Practice Brief: Enhancing Engagement of Private Sector and Local Communities on Peatland Management

• Sign Up Log In
• News & Insights
• Find an Accountant

Need help selecting a firm?

Tell us about your project and get introduced to the best accounting and tax firm for your needs.

9 IRS Factors to Determine Profit Motive

The IRS uses nine factors to determine if a taxpayer has a profit motive for engaging in a given activity. These factors are not exclusive of 

No one factor is decisive, but all must be considered together in making a determination of whether an activity is for profit. The factors are:

• Is The Activity Carried on In a Business-like Manner?  Maintenance of complete and accurate records for the activity is a definite plus for a taxpayer, as is a business plan that formally lays out the taxpayer’s goals and describes how the taxpayer realistically expects to meet those expectations.
• How Much Time and Effort Does the Taxpayer Spend on The Activity?  The IRS looks favorably at substantial amounts of time spent in the activity, especially if the activity has no great recreational aspects. Full-time work in another activity is not always a detriment if a taxpayer can show the activity is regular; time spent by a qualified person hired by the taxpayer can also count in the taxpayer’s favor.  
• Does The Taxpayer Depend on The Activity for a Source of Income?  This test is easiest to meet when a taxpayer has little income or capital from other sources (i.e., the taxpayer could not afford to have this operation fail).
• Are Losses from The Activity the Result of Sources Beyond The Taxpayer’s Control? , Losses from unforeseen circumstances like drought, disease, fire, etc., are legitimate reasons for not making a profit., The extent of losses in a start-up phase of a business also needs to be looked at in the context of the kind of activity involved.
• Has the Taxpayer Changed Business Methods in Attempts to Improve Profitability? , Document efforts of the taxpayer to turn the activity into a profit-making venture.,
• What Is the Taxpayer’s Expertise in the Field? , Extensive study of this field’s accepted business, economic, and scientific practices by the taxpayer before entrance into the activity is a good sign that profit intent exists.,
• What Success Has the Taxpayer Had in Similar Operations? , Document how the taxpayer turned a similar operation to a profit-making venture in the past.
• What Is the Possibility of Profit?  Even though losses might be shown for several years, the taxpayer should try to show that there is realistic  hope of a good profit.
• Will There Be a Possibility of Profit from Asset Appreciation?  Although profit may not be derived from current operations of an activity, asset appreciation could mean the activity will realize a large profit when assets are disposed of in the future. However, the appreciation argument may mean nothing without the taxpayer’s positive action to make the activity profitable in the present.  

TaxBuzz Guides

This site uses cookies to store information on your computer. Some are essential to make our site work; others help us improve the user experience. By using the site, you consent to the placement of these cookies. Read our  privacy policy  to learn more.

• FROM THE TAX ADVISER

Profit motive key in hobby loss cases

• Individual Income Taxation

Under the Sec. 183 hobby loss rules, the deductible expenses of a hobby are limited to the amount of income the hobby generates. To avoid this limitation and be considered a business, an activity must be engaged in for profit. Three recent tax court cases illustrate how difficult it can be for taxpayers to establish that they had a profit motive in their activity.

In Williams , T.C. Memo. 2018-48, after applying the nine-factor test in Regs. Sec. 1.183-2, the Tax Court held that a taxpayer had failed to prove that his consistently unprofitable ranching activity was engaged in for a profit. From 2000 to 2015, the taxpayer failed to report a net profit from the Schedule F activity. During this time, he reported an overall net loss of $1.7 million from the ranching activity, while reporting income from non-Schedule F activity, mainly from writing associated with his chiropractic degree and bachelor's degree in biochemistry, totaling $3 million.

Points that the court found weighed against the taxpayer's claim of a profit motive included that although the taxpayer engaged the services of a bookkeeper and a CPA, he did not operate the business in a businesslike manner because he never reviewed the ranching activity's financial statements with either the bookkeeper or the CPA; he did not establish a formal written business plan; and, after five years of operating the ranch at a loss, the taxpayer never changed the operating structure of the ranching activity. In addition, the court also found the taxpayer did not devote sufficient time to the ranching activity, devoting only an average of six to eight hours per week to it, while devoting approximately 32 hours per week to his profitable writing activity.

In contrast to the Williams case, in Welch , T.C. Memo. 2017-229, another ranching activity was deemed to have a profit motive despite years of losses. The taxpayer in the case was a college economics professor for 40 years. Again, the Tax Court applied the nine-factor test in Regs. Sec. 1.183-2 to determine whether the taxpayer had a profit motive. The taxpayer did not have a written business plan for the ranching activity, but the court determined that in this specific case, that did "not negate a profit motive."

Points the court cited as favoring the taxpayer included that the taxpayer made changes to the overall ranching activity three times due to a lack of profit; had been involved in agriculture since he was in middle school and had obtained a degree in agricultural economics; and employed 25 employees relating to his ranching activity who had the experience necessary to conduct the ranching activities, including a ranch manager who has been associated with ranching his entire professional career. In addition, although he spent four days per week on other nonranching endeavors, the taxpayer was still in daily contact with the ranch manager.

In Ford , T.C. Memo. 2018-8, the taxpayer, a former country music artist, purchased a club primarily for country music writers to have up-and-coming artists perform their songs. The expenses of running the club consistently exceeded the revenue from admission. The Tax Court held that running the club was not an activity engaged in for profit because the taxpayer did not have the intent to make a profit from the club. The court found that the taxpayer "had no expertise in club ownership, maintained inadequate records, disregarded expert business advice, nonchalantly accepted [the club's] perpetual losses, and made no attempt to reduce expenses, increase revenue, or improve [the club's] overall performance" and that the taxpayer was "primarily motivated" by the personal pleasure she received from owning a performance venue.

For a detailed discussion of the issues in this area, see "Recent Developments in Individual Taxation" in the September 2018 issue of The Tax Adviser .

— Darren L. Neuschwander, CPA

The Tax Adviser is the AICPA's monthly journal of tax planning, trends, and techniques.

Also in the September issue :

• A look at the new rules for deducting personal casualty losses.
• An analysis of the Supreme Court's Wayfair decision.
• A discussion of tax planning dialogues around the client's Form 1040.

AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section members can subscribe for a discounted price of $30 per year.

Where to find May’s flipbook issue

The Journal of Accountancy is now completely digital. 

SPONSORED REPORT

Manage the talent, hand off the HR headaches

Recruiting. Onboarding. Payroll administration. Compliance. Benefits management. These are just a few of the HR functions accounting firms must provide to stay competitive in the talent game.

FEATURED ARTICLE

2023 tax software survey

CPAs assess how their return preparation products performed.

The Test for Profit Motive: Allowance of Deductions under IRC § 183 Test

• Posted on July 15, 2021

What factors aid the Tax Court in deciding when an activity is entered into with a “profit motive” (with allowable ordinary and necessary expenses) versus a hobby (where losses may be taken only up to the amount of profit received)?

Taxpayers can deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business, [1] for the production or collection of income, [2] or for the management, conservation, or maintenance of property held for the production of income. [3] Nevertheless, before engaging in the “ordinary and necessary” inquiry, taxpayers must pass the IRC § 183 test.

The Nine Factors

Factor one: manner in which the activity is conducted.

The first factor examines how the taxpayer carries on the activity. A taxpayer who works in a “businesslike manner” and “maintains complete and accurate books and records” is more likely to have a profit motive than one who merely seeks to “get better” and “win” and who fails to adequately keep separate books and records, as in the present case. [13] Profit motive may also be found “where an activity is carried on in a manner substantially similar to other activities of the same nature which are profitable.” [14]

Without adequate recordkeeping, it is quite difficult for a taxpayer to evaluate economic performance and ways to improve profitability. [15]   The Tax Court has historically been lenient with respect to recordkeeping, holding that even informal recordkeeping is sometimes enough to help show a profit motive, [16] but the taxpayer’s system must at least provide “the minimum financial information necessary” to make business decisions. [17]

Factor Two: Expertise of Taxpayers or Advisers

Factor three: time and effort expended on the activity.

Activities with substantial personal or recreational aspects neutralize this factor. Indeed, the Tax Court has previously held that the time and effort factor is “neutral” for taxpayers who “also derived substantial recreational benefit from the time they spent with their horses,” even given the work associated with the activity. [27]

Factor Four: Expectation That Assets Used in Activity May Appreciate in Value

An expectation that assets will appreciate in value can suggest a profit motive even if the taxpayer derives no profit from current operations. [28] The Tax Court will only infer a profit motive if a taxpayer expected that the asset’s appreciation would exceed their operating expenses, such that the eventual gain on sale would allow them to recoup their losses. [29] The fact that the asset in question loses value over the years and is ultimately sold at a loss, likewise cuts against the taxpayer’s argument. [30]

Factor Five: Success in Carrying on Other Similar Activities

A taxpayer’s previous success in similar activities may show that he has a profit objective, even if the activity is currently unprofitable. [31] Curiously, success in the insurance industry does not correlate to success in team roping events—so said the Tax Court.

Factor Six: History of Income or Loss

Factor seven: amount of occasional profits, if any.

Occasional profits can show a profit motive, but the size and frequency of profits relative to losses are what matter. [35] Further, an occasional small profit from an activity generating large losses, or from an activity in which the taxpayer has made a large investment, would not generally be determinative that the activity is engaged in for profit. [36]

Factor Eight: Taxpayer’s Financial Status

A taxpayer’s lack of substantial income or capital from sources other than the activity at issue may indicate that the activity is engaged in for profit. [37] However, when a taxpayer is independently wealthy, the Tax Court has not historically applied this factor in the taxpayer’s favor. [38]

Factor Nine: Elements of Personal Pleasure or Recreation

Presumption of profit motive.

The Code provides a rebuttable presumption whereby the Tax Court will “presume” that an activity is carried on for profit if the gross income derived from the activity exceeds the activity’s deductions for three of the last five years. [43]   For purposes of this test, deductions are determined without regard to whether or not the activity is engaged in for profit. [44] The presumption is rebuttable, meaning that once the taxpayer demonstrates profit for three of the last five years, the burden shifts to the IRS to show that the activity was not engaged in for profit under the nine-factor test set forth above.

Under the regulations, the presumption applies only for the third profitable year and all subsequent years within the five-year period beginning with the first profit year. [45] This is best illustrated through an example. [46]

Example : Uncle Bill was not always a successful emu farmer. In the beginning, he struggled to determine how best to make his favorite hens, Marlene and Darlene, lay eggs consistently.  Though he varied their diets during his first few years, it wasn’t until Marlene got a certain twinkle in her eye as Bill was humming “The Way You Look Tonight,” that the emu farm went gangbusters.  Now, when it’s egg laying time, Bill serenades Marlene, Darlene, and the eight other hens with the dulcet tones of Sinatra and Sammy Davis, Jr. (but never Dean Martin—Bill has his reasons)).

Stunning Sheila’s (Bill’s emu farm) had a loss in year 1, 3, and 6, with profits in years 2, 4, 5, 7, and 8.  He notes that year 6 was an outlier, because Marlene and Darlene had gotten into some sort of emu-tiff and refused to be in the same room together, meaning that neither was a regular egg layer.  Looking at the Treasury Regulations, the first five-year period would begin in year 2, the first profit-making year.  The benefit of the presumption does not kick in until year 5, the third profit year.  The presumption would not apply in years 2, 3, or 4, because it does not apply until the third profitable year during the five-year period.  As such, the presumption would apply to years 5 and 6.  A second five-year period begins with the second profitable year (year 4) and runs through year 8.  Thus, the presumption would attach for years 7 and 8.  Taken together, Bill can avail himself of the presumption of profit in years 5, 6, 7, and 8.

A taxpayer may elect to delay the testing period until the fifth year in which the taxpayer is engaged in the activity by filing a Form 5321 with the IRS within three years after the non-extended due date of the return for the first taxable year in which the taxpayer engages in the activity. [47] However, in doing so, the taxpayer agrees to the automatic extension the statute of limitations for all years in the postponement period until two years after the due date of the return for the last year of the postponement period. [48] This automatic extension applies, however, only to a deficiency attributable to the activity and does not extend the statute of limitations for unrelated items. [49]

Commentators note that it is exceptionally rare, and often misguided, to make such an election.  In making the election, the taxpayer tips off the IRS that there is a potential profit-making issue, which greatly increases the chance that the IRS may scrutinize (audit) the activity. Further, if the presumption is not met, the taxpayers will have both alerted the IRS and may have a substantial tax deficiency for all years.  There are benefits—resolving audits of earlier years or avoiding litigation—but a cost benefit analysis should be made before the election is made.

Aggregating Hobbies for Loss Purposes

Though Uncle Bill is an idiot-savant when it comes to flightless birds, his abbreviated attempt at breeding pine martens for sale to the fine folks in New Hampshire, who could use them as they saw fit, though he hoped that they would introduce the weasel-like animals into the wilds (where they are considered a “threatened” species), was nothing short of a bloody disaster.  Bill had a certain je ne sais quoi when it came to emus.  They could be ornery and mean as a Florida black snake on a tar roof in August, but when Bill was around, they were like fawning two-legged, feathered puppies.  Nevertheless, his husbandry was not met with approval from the seven pairs of breeding martens he trapped in the Northwoods and brought to his farm.

Later research would inform Bill that American martens are extremely solitary creatures, who only interact with each other to breed or fight about breeding.  Having fourteen sex-crazed martens in forced proximity consequently led quickly to a reduction in Bill’s breeding population.  Despite the males being much larger, in the end, he was left with one angry, pregnant female, who he named Carole—after his sister-in-law, of whom the marten reminded him so very much.  Whether Bill let Carole escape or whether she figured out how to jimmy the door to her enclosure is a subject of much debate, but in the end, Bill considered this a real loss—for tax purposes.  ( He wouldn’t miss Carole’s beady little eyes. )

Where a taxpayer is engaged in several undertakings, as Bill was with his emu farm and marten experiment, each activity may be a characterized separately, or several undertakings may constitute one activity. In ascertaining the activity or activities of the taxpayer, all the facts and circumstances of the case must be taken into account. [50] Generally, the most significant facts and circumstances the IRS and Tax Court use to make this determination are the degree of organizational and economic interrelationship of various undertakings, the business purpose served by carrying on the various undertakings, and the similarity of various undertakings. [51]

Although the IRS “will accept the characterization by the taxpayer of several undertakings as a single activity,” it will not accept the characterization when it “appears…artificial and cannot be reasonably supported under the facts and circumstances of the case.” [52]   If the taxpayer engages in two or more separate activities, deductions and income from each separate activity are not aggregated either in determining whether a particular activity is engaged in for profit or in applying IRC § 183 . However, if the taxpayer is engaged in multiple activities that may be aggregated, an item of deduction or income may be allocated between such activities.

Poodle breeding and dog grooming could be aggregated, in part because when you bought a poodle, you agreed to have it groomed by the taxpayers. [57] Owning a farm and breeding horses, similarly, may be aggregated. [58]   In this latter case, the Tax Court held that They were both done on the same land; both were attempts to generate income from the farm; some of the same assets were used for both businesses; the rodeos were used to advertise and sell the horses raised on the farm; the same accountant and the same checking account were used for both businesses; and both activities were reported on the same schedule each year. [59]   It’s important to note, here, that one way to build a stronger case for aggregation of activities is to report all activities on a single Schedule C (Profits and Losses from Business) each and every year.

The Tax Court has historically applied various factors in deciding whether a taxpayer’s characterization of several undertakings as one activity is unreasonable for purposes of IRC § 183 , [60] such as:

• Whether the undertakings share a close organizational and economic relationship;
• Whether the undertakings are conducted at the same place;
• Whether the undertakings were part of a taxpayer’s efforts to find sources of revenue from his or her land;
• Whether the undertakings were formed as separate businesses;
• Whether one undertaking benefited from the other;
• Whether the taxpayer used one undertaking to advertise the other;
• The degree to which the undertakings shared management;
• The degree to which one caretaker oversaw the assets of both undertakings;
• Whether the taxpayers used the same accountant for the undertakings; and
• The degree to which the undertakings shared books and records.

The Tax Court in Hoyle further held that because holding the land for appreciation was one of the activities, though the farming was not profitable, the two activities could be aggregated.  Importantly, the taxpayer’s primary intent was to operate a farm.  Holding the land for appreciation was incidental.  If he instead primarily held the land for appreciation, and just so happened to operate a farm that was not profitable, the result would be different under the regulations. [62]   If the farm were profitable, then the result would be the same with either intent. [63]

As a result of the Hoyle case, and other favorable cases with similar fact patterns (though not involving murderous martens), it is likely that Bill will be able to aggregate his pine marten activity with not only his emu farming activity, but also with the holding of the land for appreciation, which will enable Bill to take deductions such as interest on a mortgage secured by the land, annual property taxes attributable to the land and improvements, and depreciation of improvements to the land.  Thus, the blow from the loss of Carole and her fellow investment martens is significantly softened and all but forgotten when tax time rolls around when Bill can translate those emotional losses to losses from the conduct of an activity entered into for profit under Schedule C.

[1] IRC § 162.

[2] IRC § 212(1).

[3] IRC § 212(2).

[4] Dreicer v. Commissioner , 78 T.C. 642, 645 (1982), aff’d without published opinion , 702 F.2d 1205 (D.C. Cir. 1983).

[5] See Treas. Reg. § 1.183–2(a).

[6] See Dreicer v. Commissioner , 78 T.C. 642, 645 (1982), aff’d , 702 F.2d 1205 (D.C. Cir. 1983).

[7] See also Elliott v. Commissioner , 90 T.C. 960, 970 (1988), aff’d , 899 F.2d 18 (9th Cir. 1990).

[8] Westbrook v. Commissioner , 68 F.3d 868, 876 (5th Cir. 1995), aff’g T.C. Memo. 1993-634.

[9] See Treas. Reg. § 1.183-2(a).

[10] See Treas. Reg. § 1.183-2(b); Allen v. Commissioner , 72 T.C. 28, 34 (1979).

[12] Burger , T.C. Memo. 1985-523.

[13] See Treas. Reg. § 1.183-2(b)(1).

[15] See Burger v. Commissioner , T.C. Memo. 1985-523, aff’d , 809 F.2d 355 (7th Cir. 1987).

[16] See Keenan v. Commissioner , T.C. Memo. 1989–300.

[18] T.C. Memo. 2021-25.

[19] #winning.

[20] See Kneels v. Commissioner , T.C. Memo. 2017-152, *15.

[21] Treas. Reg. § 1.183-2(b)(2).

[22] Heinbockel v. Commissioner , T.C. Memo. 2013-125, *24-*25; Golanty v. Commissioner , 72 T.C. 411, 432 (1979).

[23] Metz v. Commissioner , T.C. Memo. 2015-54, *44.

[24] See Golanty v. Commissioner , 72 T.C. 411, 432 (1979), aff’d , 647 F.2d 170 (9th Cir. 1981).

[25] Treas. Reg. § 1.183-2(b)(3).

[26] See Metz , T.C. Memo. 2015-54, at *46-*47.

[27] See Dodge v. Commissioner , T.C. Memo. 1998-89, 1998 WL 88175, at *5-*6), aff’d , 188 F.3d 507 (6th Cir. 1999); Giles v. Commissioner , T.C. Memo. 2006-15, 2006 WL 237503, at *13.

[28] See Treas. Reg. § 1.183-2(b)(4).

[29] See Bronson v. Commissioner , T.C. Memo. 2012-17, *8, aff’d , 591 F. App’x 625 (9th Cir. 2015).

[30] Heinbockel , T.C. Memo. 2013-125 at *26.

[31] See Treas. Reg. § 1.183-2(b)(5).

[32] See Treas. Reg. § 1.183-2(b)(6).

[34] Id. ; Burger , T.C. Memo. 1986-523.

[35] See Treas. Reg. § 1.183-2(b)(7).

[37] See Treas. Reg. § 1.183-2(b)(8).

[38] See, e.g. , Heinbockel, T.C. Memo. 2013-125 at *11; Gallegos , T.C. Memo. 2021-25 at *23-24.

[39] See Treas. Reg. § 1.183-2(b)(9).

[40] See Betts , T.C. Memo. 2010-164 at *9.

[41] See Burger , T.C. Memo. 1985-523.

[42] White v. Commissioner , 23 T.C. 90, 94 (1954), aff’d , 227 F.2d 779 (6th Cir. 1955).

[43] IRC § 183(1).  For horse related activities, the test is for profit in two out of the last seven years.

[44] Id.   Further, the taxpayer excludes net operating losses in determining deductions. Treas. Reg. §1.183-1(c)(1)(ii).

[45] Treas. Reg. §1.183-1(c)(1)(ii).

[46] Adapted—loosely—from Treas. Reg. §1.183-1(c)(2), Ex. 1.

[47] IRC § 183(e).

[48] IRC §183(e)(4).

[49] See, e.g. , Pruitt v. Commissioner , 63 T.C.M. 2628 (1992) (IRS can assess any deficiency attributable to an IRC § 183 activity since taxpayer, having made an IRC § 183(e) election, extended statute of limitations); TAM 8330002 (waiver of statute of limitations accompanying an IRC § 183(e) election extends period for assessment based on facts other than profit motive determination (disallowed part of auto-travel, depreciation, cost of goods sold, interest expense, and also to adjust gross receipts)).

[50] Treas. Reg. § 1.183-1(d)(1).

[53] De Mendoza v. Commissioner , T.C. Memo. 1994-314.

[54] Wilkinson v. Commissioner , T.C. Memo. 1996-39.

[55] Zdun v. Commissioner , T.C. Memo. 1998-296.

[56] Not sorry for the pun.  See Topping v. Commissioner , T.C. Memo. 2007-92 (finding that the taxpayer relied on contacts made at the club to advance her design business and finding that there was a close organizational and economic relationship between the two undertakings).

[57] Keanini v. Commissioner , 94 T.C. 41 (1990).

[58] Estate of Brockenbrough v. Commissioner , T.C. Memo. 1998-454.

[60] Id. (citing Keanini , 94 T.C. at 46 (1990); Hoyle v. Commissioner , T.C. Memo.1994–592; De Mendoza , T.C. Memo.1994–314; Scheidt v. Commissioner , T.C. Memo.1992–9; Trafficante v. Commissioner , T.C. Memo.1990–353; Schlafer v. Commissioner , T.C. Memo.1990–66).

[61] Hoyle v. Commissioner , T.C. Memo. 1994-592.

[62] Treas. Reg. § 1.183-1(d)(1).  Where land is purchased or held primarily with the intent to profit from increase in its value, and the taxpayer also engages in farming on such land, the farming and the holding of the land will ordinarily be considered a single activity only if the farming activity reduces the net cost of carrying the land for its appreciation in value.

[63] Id. The farming and holding of the land will be considered a single activity only if the income derived from farming exceeds the deductions attributable to the farming activity which are not directly attributable to the holding of the land.

Related Posts

• Categories: All Articles , Income Tax Issues , Tax Articles
• Tags: Activity Engaged in for Profit , Hobby Losses under IRC § 183 , IRC § 183 , Profit Motive , Uncle Bill

Like this article? Share this Article.

This post has 4 comments.

Pingback: Deductibility of Fines and Penalties under New IRC § 162(f) Regulations

Pingback: Gregory v. Commissioner (T.C. Memo. 2021-115)

Pingback: Skolnick v. Commissioner (T.C. Memo. 2021-139)

Pingback: Walters v. Commissioner (T.C. Memo. 2022-17)

Leave a Reply Cancel reply

© 2022 – Scott St. Amand All rights reserved.

© 2021 Briefly Taxing All rights reserved.

Discover more from Briefly Taxing

Subscribe now to keep reading and get access to the full archive.

Type your email…

Continue reading

Tax analysis that you (actually) want to read:

Served up weekly, with a heaping helping of snark..

You can unsubscribe anytime. For more details, review our Privacy Policy .

You have successfully joined our subscriber list.

What's on your mind?

Are you curious about a particular tax topic and wish we would write about it?  Do you want to heap lavish praise upon your fearless editor?  Did we royally muck something up?   Let us know in any event!

Reset password

• Favorite list is empty.

Your favorite posts saved to your browsers cookies. If you clear cookies also favorite posts will be deleted.

By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy.

The Business Ethics Blog

• Encyclopedia of Business Ethics

Ethics of Profit, Part 3: The Profit Motive

But we should be cautious about jumping too quickly to criticize the profit motive, either in particular cases or as a force in the economy as a whole. Here are just a few points:

1) People often suspect the profit motive — or at least, excessive focus on the profit motive, in the form of greed — of being responsible for a lot of corporate wrong-doing. But, anecdotes aside, that intuitive hypothesis isn’t necessarily well-supported by the facts. I’ve mentioned previously a paper by philosopher Joseph Heath* that points out that there are problems with the theory that greed is the root cause of a lot of wrongdoing. Corporate crime is actually more often aimed at loss-avoidance than at profit-making. And it’s also worth noting that we see lots of white-collar crime occurring at the top of organizations, committed by people who are already rich and who hence have relatively little to gain in financial terms. As Joe points out, the criminological literature has long since discarded the notion that greed is the root of all (or even most) evil.

2) Despite the fact that the traditional corporate (and anti-corporate) rhetoric has focused on the significance of profits, it’s probably much more likely that corporations and the key decision-makers within them are moved by a much broader range of motives, including things like:

• A desire to increase market share;
• The desire to innovate;
• The desire to create cool products;
• Basic competitive drives to be (and prove yourself to be) bigger, stronger, faster, smarter, etc.;
• The CEO’s desire to build his or her personal legacy;

Of course, each of those motives can almost certainly result in wrongdoing too. But that just reinforces the point that even if the profit motive causes trouble, it isn’t unique in that regard.

3) The profit motive, whatever else it may do, plays 2 absolutely essential roles in any modern economy. Economist Steven Horwitz points this out in his “Profit: Not Just a Motive” . One role (as Adam Smith pointed out) is the basic one of motivating productive activity. Now, Smith never said that the profit motive is the only thing that motivates people to engage in production and trade. But what he did say is that even someone who doesn’t happen to have much love for his or her fellow human being is liable to end up doing something productive, even if only because he or she wants to earn a living. The other role for the profit motive is more subtle, and has to do with information. As Horowitz puts it:

What critics of the profit motive almost never ask is how, in the absence of prices, profits, and other market institutions, producers will be able to know what to produce and how to produce it. The profit motive is a crucial part of a broader system that enables producers and consumers to share knowledge in ways that other systems do not.

4) The profit motive also plays an essential role in modern corporate governance. Most large corporations are “owned” (in a very loose sense) by shareholders, to whom corporate managers and directors owe a fiduciary duty. In particular, managers and directors are obligated to try to make a profit . (Note that, contrary to what many seem to think, there is no obligation to actually make a profit, and the need to make a profit is not, in fact, legally binding or overriding. Shareholders only ever get a profit after a number of other, legally-binding, obligations — such as the obligation to pay workers, to pay suppliers, to provide refunds for consumers who bought faulty products, etc. — are met.) The strong obligation to try to make a profit for shareholders provides focus for managers. Rather than being pulled in 20 different directions by 20 different stakeholders, corporate managers have in mind that, yes, they need to keep in mind various stakeholder obligations, but all of that has to be part of an overall plan aimed at shareholder profits. Many people believe that this imposes a kind of discipline on corporate executives, without which those executives would be free to feather their own beds, throw lavish parties for their favourite charities (not necessarily the most needy ones), hire under-qualified siblings for key roles, etc.

5) Getting rid of the profit motive would essentially mean abolishing private ownership. When we talk about “profit”, we’re typically talking about the money that flows from owning something. It might be the landlord’s profit (i.e., whatever’s left after costs are subtracted from rent) or the shareholder’s profit (i.e., the dividend that might be paid out on the shares he or she owns, if the corporation happens to make a profit). Abolishing the profit motive basically means and end to permitting individuals to own things. So why do critics of the profit motive so seldom (in the last, say, 4 decades) propose ending private ownership? Hmmm. As Joseph Heath put it in “Learning to love the Psychopath” [ PDF ] (a review of the movie, The Corporation ), “If public ownership is not the solution, then private ownership cannot be the problem.”

6) Even if we could keep our attachment to private ownership and wish into existence more “positive” motives than the profit motive, it’s not clear that we would be better off. Even if large numbers of executives (and shareholders) could be convinced not to aim at profit, but instead to aim at things like charitable deeds or the public good or world peace , it’s not clear that that would solve the problems we are most worried about. Does anyone really think that fraud couldn’t be, or indeed hasn’t been, committed in the name of charity? Does anyone believe that lies haven’t been told and thefts committed in the name of the public good?

None of this is intended as a blanket endorsement of profit-seeking. It’s just a reminder that in our haste to criticize the profit motive, we ought not ignore important questions about just what role the profit motive plays, what current institutions do to transform a range of motives into a range of outcomes, and what alternative motives and institutions are available to us.

——— *Joseph Heath, “Business Ethics & Moral Motivation: a Criminological Perspective,” Journal of Business Ethics 83:4, 2008. Here’s the abstract .

Share this:

7 comments so far.

[…] 1976), pp. 312-322 ———- Update: Part 2 of this series is here and Part 3 is here. « Corporate Motives and Discrimination Ethics of Profit, Part 2: Profits […]

[…] Read the article here. […]

As long as we continue to use the notion of “profit motive” to refer to both individuals and organizations, we will remain unclear about the nature and function of corporations in any social system. See my book Corporate Integrity for details about this distinction. Organizations do not have “motives,” individuals do. Organizations are designed to achieve certain purposes, and I believe these purposes depend on their role in the system of provision in which they operate, such as the food or housing system. (see Civilizing the Economy for development of these notions).

As far as I can tell, in the blog posting above I only attributed motives to persons, not to organizations.

But at any rate, I’m not as skeptical as you about attributing motives to organizations. I think the complex ways in which organizations operate prevent us from reducing everything to individual motives. On the other hand, I do think it is often devilishly difficult to figure out what corporate motives are. See my recent blog posting here: Corporate Motives & Discrimination .

[…] profit motive (taken as driving shareholder-controlled corporations) is often singled out for criticism. But all […]

Yeah, the profit motive is an important part of a functioning modern economy, but the idea that people don’t commit fraud because they are greedy is ridiculous. As is the idea that people who are already wealthy can’t be greedy for more. Indeed, the very definition of greed implies an excess of selfish desire. Greed compels people to do things that a healthy self-interest does not, to acquire more than they need, at a greater risk than is prudent, or at the expense of ethical principles. This entry tries to frame the profit motive as completely good, but in reality it has both good and bad consequences. We need other forces, like transparency, law enforcement, well-designed markets that align profit with public good, and an ethical culture, to minimize the bad consequences and maximize the beneficial outcomes.

Thanks for your comment.

The question isn’t whether greed sometimes plays a role in fraud. The question is how important that role is. There’s not much evidence that it’s the decisive factor.

It’s hard to see how you can think I portray the profit motive as entirely good, when I’ve said: “I do have serious worries about what people inside the pharmaceutical industry are willing to do to maintain those profits.”

Leave a comment Cancel reply

Chris MacDonald, Ph.D., is an educator, speaker, and consultant in the realm of business ethics. He teaches at the Ted Rogers School of Management , at Ryerson University in Toronto, where he is Director of the Ted Rogers Leadership Centre .

Chris is former Interim Director of the Ted Rogers MBA at Ryerson.

He is also a Senior Fellow at Duke University's Kenan Institute for Ethics .

MacDonald is also co-author of the (free, online) Concise Encyclopedia of Business Ethics .

He is a "Most Viewed Writer" on Quora, for the topics Business Ethics , CSR , and Ethical Dilemmas .

Chris has three times been declared one of the "Top 100 Thought Leaders in Trustworthy Business Behavior" , and has several times been named one of the 100 Most Influential People in Business Ethics .

He is also co-founder of Choice Point Solutions, Inc. , a small consultancy offering custom text-based simulations to help organizations train employees for better decision-making.

He has been writing The Business Ethics Blog since November of 2005.

Business ethics professors say The Business Ethics Blog is... "...the best thing that ever happened to Business Ethics courses...clear and intelligent presentation of the real ethical stakes behind the current headlines..." [Prof. Wayne Norman, Duke University]

"...one of the best destinations on the web to send students for fascinating and timely analyses of cutting-edge issues ..." [Prof. Laura Hartman, DePaul University]

• Search for:
• ----------------------------------

Recent Posts

• Lisa LaFlamme, CTV News, and Bad Executive Decisions
• Corporate A.I. Helping Students Cheat?
• Will Amazon Ban “Ethics”?
• Respectful Disagreement About Sanctioning Russia
• Corporate Vigilantism vs Russia?
• About Chris MacDonald,Ph.D.
• Email Chris
• BusinessEthics.ca
• Wealth of Nations: Glossary
• Other Business Ethics / CSR Blogs
• Subscribe to e-mail notification of new postings.
• Welcome, Students! (advice for students using this blog)
• FAQ (Frequently Asked Questions)

See also: The Ethics of Academic Integrity The EthicsWeb Bookstore Chris MacDonald, Ethics Consultant Business Ethics Highlights Business Ethics Journal Review

• Already have a WordPress.com account? Log in now.
• Subscribe Subscribed
• Copy shortlink
• Report this content
• View post in Reader
• Manage subscriptions
• Collapse this bar

Business motives

Firms are organisations often involving thousands of people directly, with millions of people indirectly involved. Not all people directly or indirectly involved in an enterprise have the same goals or gain the same rewards. For example, entrepreneurs take business risks and expect a profit from their entrepreneurial skill and effort whereas managers, who are appointed by owners to make decisions, are not rewarded with profits. Managers receive a salary and other benefits, such as a company car, and may be motivated to maximise revenue , out of which salaries and other benefits are paid. Employees, and the unions they belong to, will hope the business survives so that they retain their employment in the long run and pay a decent wage . The local community will hope the business provides jobs, without generating excessive external costs. The government will also hope that firm’s survive, prosper, and grow as their tax revenues depend on this happening.

Economists identify the following different motives:

Profit maximisation.

Maximising profits means achieving the highest possible profit for the risk taker. Profits are achieved when a firm’s revenue is greater than its production costs. Profit maximisation has long been assumed to be the dominant goal of private enterprise, a view that dates back to Classical and neo-classical economists of the late 19th Century.

Economists distinguish different types of profit, including normal profit, which is just sufficient to keep the entrepreneur supplying their enterprise, and super-normal, or abnormal, profit, which is profit in excess of normal profit. Earning normal profit is also said to occur when the single entrepreneur or firm just covers opportunity cost and chooses to keep supplying to the market.

Sales volume maximisation

To maximise sales volume means to sell as many products as possible, without making a loss. This means the firm must produce an output where the total revenue generated from sales just covers the total costs of production.

Sales revenue maximisation

Maximising total revenue means gaining the maximum possible revenue from selling a product. Economic theory suggest that a price can be identified which achieves this goal. Sales revenue, or sales turnover, maximisation is associated with ‘managerial’ theories of business motives, which stress the importance of management decision making in large organisations.

Market share

Some firms may wish to increase their share of a market. This motive is significant for firms operating in markets with a few large competitors, called oligopolies , and where winning market share from rivals is less risky and costly than trying to win brand new customers.

Some firms take a short-term view and simply want to survive. Survival is significant for new firms and those in highly competitive markets . It is also common when there is a downturn or recession in the macro-economy, meaning that consumer spending falls across the whole economy.

Shareholder value

To increase shareholder value means to increase the asset value of the business.  Shareholder value is defined as the remaining value of the business once all debts have been paid.

Ethical goals

Increasingly, firms are introducing ethical goals such as those associated with the environment and carbon emissions and with fair trade.

Satisficing

Satisficing is a term first used by Herbert Simon in 1957, and means attempting to take into account a number of different and competing objectives, without attempting to ‘maximise’ any single one. For example, managers may first try to ensure that shareholder’s get a reasonable rate of return first, and then seek to reward themselves. Satisficing can also be referred to as ‘profit satisficing’.

Which motive will dominate?

The dominance of a goal depends upon a number of criteria, including:

Who owns the firm?

Owners often have different objectives that those appointed to manage the firm’s operations. For example, sole traders may try to maximise profits, whereas public limited companies (plcs) may try to increase shareholder value. In contrast, not-for-profit firms may simply wish to maximise sales volume, or another, non-commercial objective.

Who manages the firm?

Firms that are managed by their owners, such as sole traders , may try to maximise profits, whereas firms run by professional managers may look to maximise sales revenue , given that they are usually paid a salary from revenue rather than from profit.

How large the firm is?

Small firms may simply hope to survive, whereas larger firms may expect to develop market share.

What competitors are doing

If one, perhaps the dominant firm in a highly competitive market, introduces a new strategy this often becomes shared by all firms in the industry. The concern with ethical and environmental issues has gained momentum as, one-by-one, large plcs have introduced an ethical and environmental dimension to their operations. This is often called a ‘band-wagon’ effect.

The time period

In the short run, basic goals such as survival may dominate, while in the long run more challenging goals may dominate, such as maximising shareholder value, or introducing environmental goals.

Goals change to reflect changing conditions and circumstances of particular firms.

Example – Tesco

When Tesco started at the end of the First World War its co-founder, Jack Cohen, was likely to have been more concerned as a sole trader with day to day survival. Five years later Cohen formed a partnership with T E Stockwell to create Tesco and set up their first store. In 1932, Tesco became a private limited company and by 1947, it had floated on the stock exchange and become a public limited company.  This enabled capital to be raised to finance a rapid expansion programme during the 1950s and 1960s. During the 1970s, Tesco built a national store network and in the 1990s it introduced the Tesco Clubcard. In 2000, it launched Tesco.com, and widened its range of products to include electrical goods and clothing. By 2008, it had stores in 13 countries and a dominant market share in the UK grocery market of around 32%, with group profits of £2.8b on revenue of £47.3b. As Tesco has evolved and changed its legal structure, its motives and goals have clearly changed to reflect its success, and the changing nature of the market and competition it faces. (Source: Tescoplc.com)

Conflicts between goals

It should be clear that there are likely to be conflicts between competing goals. For example, the desire to maximise profits may be in conflict with a number of other goals, including sales maximisation, sales revenue maximisation and ethical goals. These conflicts will become clearer once the main goals are analysed in subsequent pages.

See: profit maximisation; sales maximisation ; sales revenue maximisation

Supply of labour

Six strategies for growth outperformance

Growth is the lifeblood of any successful business, but achieving growth that is both profitable and sustainable has proved especially difficult in recent years. Business leaders need a strategic approach that combines courage, innovation, and a willingness to make bold moves. In this episode of the Inside the Strategy Room podcast, McKinsey partners Rebecca Doherty and Kate Siegel and senior partner Jill Zucker share their insights on how companies can grow faster and more consistently than their peers. This transcript has been edited for clarity and length. For more discussions on the strategy issues that matter, follow the series on your preferred podcast platform .

Sean Brown: This may seem like a naive question, but why does growth matter?

Jill Zucker: Growth drives performance. It drives culture. It drives employee satisfaction. It helps you retain the best talent. And it fosters innovation in the marketplace. But it’s important to grow profitably. Top-line-only growth tends to catch up with you over time. And while most organizations aspire to grow, we find that growth is quite hard to achieve. Only 25 percent of companies grow sustainably over time. But if you can achieve it, that growth is rewarded, with sustainable growth outperformers generating seven percentage points more annual total shareholder returns than their peers.

Sean Brown: What does it take to be a growth outperformer?

Jill Zucker: We studied what drives growth at more than 4,000 companies around the globe, and we found a set of ingredients that are true across industries. We recognize the challenges that companies are facing today because of the global economy, so our research spans a period of ebbs and flows in the economy.

The first thing that we found is that it’s important to wake up in the morning and actively choose growth. We meet many executives who say they want their companies to grow, but they don’t allocate resources to support that growth over time.

You also need the courage to make bold moves, even in a time of economic uncertainty. In previous decades, you could choose not to pursue growth in a temporarily challenging environment. These challenging events, however, have become so pervasive that we need to have a through-cycle growth mindset. During the financial crisis, the gap between those companies that chose growth and those that stuck to maintaining the core business was reasonably narrow, but as the economy settled, that gap significantly widened. You saw a much steeper growth curve among those that had made bold bets during the downturn.

Sean Brown: How do you ensure that the pathways you choose lead you to the intended destination?

Subscribe to the Inside the Strategy Room podcast

Jill Zucker: You need to lay the foundation for more dynamic resource allocation, by which we mean both capital and talent. It means being careful in your culture to shut off projects without shutting off the talent. Just because a talented executive pursued a good experiment that didn’t work out doesn’t mean the executive should leave. Talent remains scarce in many business areas, so it’s important to allocate it to growth projects. It also means allocating resources to areas you are convinced will grow and eliminating the hobbies.

Secondly, you need to think about inorganic opportunities—both acquisitions and divestitures. The third part of the foundation is building functional capabilities, whether it’s marketing or digital or innovation.

Sean Brown: What strategies do you find growth outperformers pursue?

Rebecca Doherty: We looked at what companies have done both during the uncertainty over the past five years as well as over the longer term and found six differentiating strategies. One of the timeless approaches is to continue innovating in the core. Eighty percent of growth comes from maximizing the value of your core [exhibit]. But that’s not enough to put you in the echelon of companies that achieve growth on a sustained basis. To achieve that remaining 20 percent, you need to move into adjacencies in your value stream, such as new geographies, and build breakout businesses.

The third timeless element is putting people at the heart of what you do, whether it’s day-to-day growth or a broader transformation. Having your core people involved in growth initiatives with an ownership mindset is critical.

The three strategies that have emerged in more recent years include building an innovation culture , using sustainability as an accelerant to growth, and portfolio reallocation, including what we call shrinking to grow. The bold moves you make could include divesting assets where you may not be the best owner and then reallocating those resources toward growth opportunities.

Sean Brown: You talked about the timeless growth strategies. What makes them timeless?

Rebecca Doherty: The ratio of growth that comes from the core versus adjacencies or breakout business is pretty consistent over time. We’ve also found that companies that grow in all directions over a ten-year period have double the chance of outperforming their peers.

Sean Brown: How do the strongest growers embed an innovation culture?

Rebecca Doherty: We ran an executive survey of more than 1,000 companies, and I was surprised, frankly, to see how important innovation is across all the growth paths. Historically, people think of innovation as a way to turbocharge the core business. But leading growers look just as much at innovating new offerings and permeating that mindset through the company.

Sean Brown: Many companies still see sustainability more as a cost than a growth generator. How do you envision it accelerating growth?

About QuantumBlack, AI by McKinsey

QuantumBlack, McKinsey’s AI arm, helps companies transform using the power of technology, technical expertise, and industry experts. With thousands of practitioners at QuantumBlack (data engineers, data scientists, product managers, designers, and software engineers) and McKinsey (industry and domain experts), we are working to solve the world’s most important AI challenges. QuantumBlack Labs is our center of technology development and client innovation, which has been driving cutting-edge advancements and developments in AI through locations across the globe.

Rebecca Doherty: We’ve found that if you already have growth and profitability in place, sustainability can be that extra punch  that gives you a lift over your competitors. Sustainable growth is not a substitute for profitability, but companies that have been able to embed sustainability in their businesses have been rewarded. Perhaps intuitively, those that deliver growth and profits show a five-percentage-point outperformance in TSR. If you add ESG [environmental, social, and governance] into the mix—and this isn’t dabbling but integrating ESG priorities into your strategy and sharing the messages with investors—you see seven points of outperformance. In some sectors such as retail, you have brands that have brought sustainability into the core and have done strings of acquisitions over the years to drive impact.

Sean Brown: How do you balance the bets on breakout or adjacent growth against building up the core? If 80 percent of the growth comes from the core, should that much of your investment go there as well?

Rebecca Doherty: It depends in part on the maturity of the business and where you are on the growth curve. If it’s early, you should focus on propelling that core growth strategy. If it’s a mature business and you’re only making incremental gains, maybe you look to invest beyond the core. How much you invest does matter, though. Companies sometimes simply take last year’s budget and tweak it by a few percent. For a breakout business, sometimes you need to invest more—and not just more money. I worked with one company that put its chief technology officer into the new business to help grow it. The initial investment in dollars wasn’t large but the investment in talent was.

You should also think about the investment in stage gates. Some bets may require a large up-front investment, and you will not see much revenue for a while. Others, you could start with smaller investments, and the funding could grow proportionately with revenue. Different profiles can work, but it’s important to have a sound business plan, understand the operational and financial milestones, and be willing to pull the plug if it’s not panning out—which is a bold move in itself.

Sean Brown: Reallocation of resources includes both people and capital, but people tend to have incentives. How do you maintain incentives when you’re moving somebody from a stable business into a riskier growth project?

Rebecca Doherty: It ties to what Jill said earlier: a failed business doesn’t mean a failed executive. The culture needs to reward risk taking, and management has to accept that you won’t have 100 percent success. In terms of incentives, you can align an individual’s incentives to delivering the project, but also implement incentives that reward thinking about what is best for the broader company.

Jill Zucker: We see some management teams reward managers uniformly on EPS [earnings-per-share] growth of the business or total shareholder return, and therefore whether you’re innovating or you’re maximizing the core, you are rewarded equally. It’s not about giving more money to one person or another but about what will grow the total shareholder return. This encourages managers to give up some capital for innovation if they believe that doing so will improve the company’s growth.

Sean Brown: Can you elaborate on how companies should pursue growth through adjacencies?

Kate Siegel: Finding growth outside your core business is challenging, so we looked at how growth outperformers approach adjacencies. Our sample was about 250 companies that had announced significant adjacency moves over the past 20 years. We found four types of rationales, or approaches, that underpinned these moves. The first was based on customer relationships and the knowledge of customers’ pain points. The second was capabilities, where companies could use their existing assets, people, or processes in new markets. Expansion into the value chain—going upstream or downstream to capture various synergies—was another rationale. The last one was finding opportunities for disruption and business model innovation. What’s interesting is that the more approaches they used, the higher the reward, and that included both outperformers and other companies.

Sean Brown: How do companies identify those adjacencies? Is it based on experience and team discussions, or do they use tools?

Kate Siegel: There is a variety of data you can scan on trends, technologies, changes in preferences. You can also consider similarities of your offerings to certain businesses and capabilities. For example, we recently helped a software company that was struggling with high competition find diversification opportunities. We used AI to scan unstructured online data to identify more than 500 growth ideas based on the value creation approaches . Another set of AI analyses helped prioritize the opportunities based on trends, news mentions, momentum, and patent intensity to give the management team a short list of ideas. The company then considered which were the best fit, what talent they would need, or whether the market was big enough. One of these ideas was one they hadn’t talked about before. AI is a powerful tool for challenging orthodoxies.

Sean Brown: One strategy we haven’t yet touched on is shrinking to grow. What does that mean?

Kate Siegel: We know only about 10 percent of companies are able to maintain positive growth rates across a decade. But suppose you don’t have this consistent growth engine. The next-best strategy is to periodically prune back your portfolio and then grow healthily from a new base. You divest parts of the business one or two years out of the decade, but in every other year, you grow from that new base. We’ve seen that work in some conglomerates, where they regularly look at their portfolio to see if there are less attractive assets they could divest and then reinvest the proceeds into ones that could be better platforms.

Sean Brown: What if the businesses you want to prune have some star performers? How are companies thinking about that talent dimension?

Kate Siegel: Divestitures typically have key-member clauses to ensure business continuity, but you can take steps to understand which talent you would like to retain. The worst thing you can do is not think about talent when you sell a business, because it could have the best technology officer for a new growth entity you plan to reinvest in.

Rebecca Doherty: When we consider an acquisition, we often think about it as one plus one equals more than two. Likewise, when we think about divestitures or spinouts, it’s usually not two minus one equals one, because you’re not the best owner of the business, and someone else might be, or it might flourish on its own. Separations might not only give you proceeds to reinvest but also help the other entity perform better.

Sean Brown: Once you have laid out the various growth paths and developed strategies, you need to execute them well. What does excellence look like for execution?

Kate Siegel: People are at the heart of a successful transformation. Transformations that activate the full organization are eight times more likely to succeed. In addition, those in which more than 20 percent of employees owned transformation initiatives saw nearly twice the excess shareholder return than their peers did. Once you have the right aspiration mindsets and culture, with clarity on the growth pathways, the most important thing is to involve as many people as possible in the growth effort. That includes getting everyone aligned on the growth aspiration, building the skills they need, having leaders consistently talk about the growth targets, and implementing processes to verify whether the bets are working.

Sean Brown: Are you optimistic that companies can revive growth?

Jill Zucker: There is not a single company I can point to that’s not focused on growth today, despite the economic backdrop. When I think back to other periods of economic uncertainty, the hunkering down, the fixation on the core, the focus on efficiency were much more at the forefront. Now, growth remains a priority.

Jill Zucker   is a senior partner in  McKinsey’s New York office,  Kate Siegel  is a partner in the Detroit office, and  Rebecca Doherty is a partner in the Bay Area office.  Sean Brown is global director of communications for the Strategy & Corporate Finance Practice and is based in the Boston office.

Explore a career with us

Related articles.

Are you an innovative grower?

The triple play: Growth, profit, and sustainability

• Conjunctions
• Prepositions

PROFIT MOTIVE in a Sentence Examples: 21 Ways to Use Profit Motive

The concept of “profit motive” is a fundamental principle in economics and business, driving individuals and companies to pursue financial gain as their primary objective. Essentially, the profit motive refers to the desire and incentive to maximize profits through various activities and decisions.

In a competitive market, the profit motive serves as a powerful catalyst for innovation, efficiency, and growth, as businesses seek ways to increase revenues and reduce costs to boost their bottom line. This driving force influences a wide range of behaviors and strategies in the business world, shaping how organizations operate and make decisions in order to achieve financial success.

Table of Contents

7 Examples Of Profit Motive Used In a Sentence For Kids

• Profit motive means wanting to earn money from selling things.
• People work hard because they have a profit motive to make more money.
• When we make something useful, it can be sold for a profit motive .
• Entrepreneurs start businesses with a profit motive to succeed.
• We can help others and also have a profit motive at the same time.
• Sharing and caring can be more powerful than just following a profit motive .
• Sometimes people forget to think about others when they only focus on their profit motive .

14 Sentences with Profit Motive Examples

• Profit motive is often the driving force behind setting up a successful start-up business.
• When creating a business plan, it is important to clearly define the profit motive to attract potential investors.
• Balancing academic commitments with a part-time job reflects the student’s profit motive to gain financial independence.
• Attending networking events and conferences can help students understand the importance of the profit motive in the corporate world.
• Participating in case study competitions can hone students’ skills in analyzing the profit motive behind various business strategies.
• Choosing a major that aligns with personal interests and the profit motive can lead to a fulfilling career path.
• In the competitive job market, students often need to demonstrate their profit motive through internships and extracurricular activities.
• Understanding the profit motive behind economic policies can help students engage critically with current affairs.
• Students pursuing an MBA often focus on developing strategies that enhance the profit motive for companies.
• Learning about ethical considerations within the context of the profit motive can help students navigate complex business decisions.
• Engaging in projects that combine social impact with the profit motive can inspire students to pursue entrepreneurial ventures.
• Conducting market research is essential for students looking to identify opportunities where the profit motive is strong.
• Exploring the role of technology in enhancing the profit motive can empower students to innovate in their respective fields.
• Participating in campus start-up incubators can provide students with firsthand experience in developing a business model driven by the profit motive .

How To Use Profit Motive in Sentences?

To use “Profit Motive” in a sentence, you can follow these simple steps:

Understand the meaning: The term “Profit Motive” refers to the driving force or incentive behind a person’s or a company’s actions that is solely based on making a profit or financial gain.

Incorporate it in a sentence: Start by constructing a sentence where you want to express the idea of someone being motivated by profit. For example, you could say, “The company’s main goal was to maximize profits, clearly driven by the profit motive.”

Contextualize: It’s important to ensure that the sentence you create makes sense in the context you are using it. In the example above, it shows that the company’s actions are guided by the desire to make a profit.

Practice using it: To become more familiar with incorporating “Profit Motive” in sentences, try creating more sentences that convey the same concept. This will help you become more comfortable using the term in various contexts.

Remember, using “Profit Motive” in a sentence is a great way to communicate the idea that someone or something is primarily motivated by financial gain. By following these steps and practicing, you can effectively incorporate the term into your writing or conversations.

In various industries, businesses operate with a clear profit motive, seeking to maximize financial gains and drive growth. This profit-driven approach influences decision-making processes, strategies, and operational choices, shaping how companies allocate resources, set prices, and pursue market opportunities. For example, companies may prioritize cost-cutting measures, innovation, or expansion into new markets to enhance profitability and outperform competitors.

Understanding the profit motive is essential for investors, entrepreneurs, and stakeholders to anticipate business behavior, assess risks, and evaluate performance. It is a fundamental driver that influences the dynamics of markets and competition, shaping the economic landscape. By recognizing the role of the profit motive, individuals can make informed decisions and adapt strategies to navigate the complexities of a profit-driven business environment effectively.

Related Posts

In Front or Infront: Which Is the Correct Spelling?

As an expert blogger with years of experience, I’ve delved…  Read More » In Front or Infront: Which Is the Correct Spelling?

Targeted vs. Targetted: Correct Spelling Explained in English (US) Usage

Are you unsure about whether to use “targetted” or “targeted”?…  Read More » Targeted vs. Targetted: Correct Spelling Explained in English (US) Usage

As per Request or As per Requested: Understanding the Correct Usage

Having worked in various office environments, I’ve often pondered the…  Read More » As per Request or As per Requested: Understanding the Correct Usage

• Skip to main content
• Skip to secondary menu
• Skip to primary sidebar
• Skip to footer

Catholic Review

Inspiring the Archdiocese of Baltimore

Tech leaders discuss AI and well-being at Vatican conference

VATICAN CITY (CNS) — Keyun Ruan, chief information security officer at Alphabet, Google’s parent company, posed the question, “Why do we need AGI?” in reference to artificial general intelligence — AI systems that can match or exceed human intelligence across a wide range of situations.

Speaking at a conference on human flourishing and technology in the headquarters of the Pontifical Academy of Sciences May 23, Ruan said that determining AGI’s purpose and service to humanity is “a broader conversation that we have never really had at a global level.”

Scholars, tech experts, and business leaders gathered at the Vatican for a two-day conference to have that conversation about integrating emerging technologies and advancing the good of humanity.

OpenAI, the creator of ChatGPT, defines AGI as “highly autonomous systems that outperform humans at most economically valuable work,” and developing it has become a central goal of the company as well as for Meta, Facebook’s parent company, Google and others.

“It’s almost like some people think that this is the right objective because we need it in the short term, so we should pursue it,” Ruan said. “But whether we should (make) something that is more intelligent than us when society is not ready is another kind of question.”

The development of AGI requires huge monetary investments, “and there is not an equal size of investments and funding in alignment, in ethics, in human flourishing,” she noted. “We want to get the equation balanced before we race into AGI.”

As the development of artificially intelligent technology marches forward, “the framework to evaluate whether or not AI is being used correctly is that of human flourishing,” said Father Philip Larrey, a professor of philosophy at Boston College and chairman of Humanity 2.0, a nonprofit working to integrate technology and human flourishing.

Father Larrey cited a Goldman Sachs report which estimates that in the long-term artificial intelligence could replace the equivalent of 300 million full-time jobs. Just because humanity can produce these tools at a rapid pace doesn’t mean they should without finding an adequate solution for humanity to adapt to them, he said, yet “the tendency is to grant AI more and more autonomy because they are good at the jobs we want them to complete.”

Dennis Snower, an economist and president of the Global Solutions Initiative, told Catholic News Service that today “artificial intelligence is driven largely by business interests with a focus on profits and shareholder value, and these don’t align properly with our needs to flourish both individually and socially.”

Tech developers as well as business and government leaders need to “realign our profit motive with our social and environmental needs,” he said, and faith “is a vital instrument that will enable us to achieve this wider perspective.”

“Now that we’re generating all these global problems, we need, among other things, to see ourselves as part of a common humanity when addressing these problems, and the great faiths are an important steppingstone in that direction,” Snower said.

Ketan Patel, CEO of Greater Pacific Capital and chair of the Force for Good Initiative, told CNS that there is currently a shift in investment toward human flourishing and that faith leaders must be involved in guiding that movement since they “have a perspective beyond the motives of commerce.”

James Pawelski, director of education in the University of Pennsylvania’s Positive Psychology Center, told the conference that advancing human flourishing requires “connecting culture with physical and mental health,” as well as identifying culture’s role in fostering social connection and cultivating spirituality.

Elisabeth Kincaid, director of the Center for Ethics and Economic Justice at Loyola University New Orleans, said that “art, culture (and) relationships can take us beyond ourselves,” but that “artificial intelligence can never capture something beyond us.”

The Catholic tradition is filled with hope, she said, but is also tinged with a sense of “bitterness,” or a feeling that human life does not conform to what it is meant to be, which is why “human flourishing in relationship to AI, which can promise us a utopia, needs to always be aware of both the beauty and the pain that we all experience.”

Whether AI systems can be imbued with the wealth of human experience remains to be seen, the experts said, but a larger question is whether the technology will keep humanity’s best interest at heart when its intelligence surpasses that of the people who created it.

“The potential for good, the potential for addressing humanity’s greatest issues is unparalleled, unprecedented and profound,” said Janet Adams, chief operating officer at SingularityNET, a decentralized marketplace for AI algorithms. “The question is, who’s going to develop that AGI and with what values?”

Read More Vatican News

• Pope tells Christians, Buddhists to work together for peace

• Pope apologizes for using ‘homophobic’ slang

• Being missionary is not forcing conversions, pope says

• Be proud of your uniform, committed to peace, pope tells military

Kids get life lessons from pope, Italian comic on World Children’s Day

Pope: Quality education builds better human beings, not economic returns

Copyright © 2024 Catholic News Service/U.S. Conference of Catholic Bishops

Real Life. Real Faith. 

Catholic Review Media communicates the Gospel and its impact on people’s lives in the Archdiocese of Baltimore and beyond.

Our Mission

Catholic Review Media provides intergenerational communications that inform, teach, inspire and engage Catholics and all of good will in the mission of Christ through diverse forms of media.

Catholic Review 320 Cathedral Street Baltimore, MD 21201 443-524-3150 [email protected]

Social Media

• Synod report for U.S. shows growth, tensions and ‘deep desire to rebuild’ the body of Christ
• CRS official says agency has been unable to to get aid to southern Gaza Strip since May 6
• Caritas Australia mobilizes efforts to aid landslide victims in Papua New Guinea
• Amid horrors of war, Ukrainian youth make pilgrimage to Medjugorje, praying for peace
• ¿Qué ocurre con los inmuebles y objetos tras el cierre de una iglesia?

Catholic Media Assocation

Maryland-Delaware-DC Press Association

The Associated Church Press

StarTribune

For-profit hmos will, again, be blocked from minnesota's medicaid program.

Minnesota lawmakers are once again blocking for-profit HMOs from winning managed care contracts in the state's Medicaid program.

The change begins next year and will be felt most immediately by Minnetonka-based UnitedHealthcare and its nearly 32,000 enrollees covered through state health care programs. The company called the legislation an unnecessary blow to competition and questioned the process used by lawmakers.

For decades, Minnesota has hired HMOs to serve as managed care organizations in these government-run programs, which primarily serve lower-income residents. The market was reserved for nonprofit health plans up until the Legislature in 2017 voted to drop what had been a 40-year ban on for-profit HMOs. However, earlier this month legislators reversed course, including this change as part of a massive omnibus bill passed on the last day of the legislative session.

Opponents have argued for-profit insurers may be more likely to stint on coverage, though there's a lack of comprehensive research on the subject. Some critics also contend for-profits are too willing to trade away good care access to protect profits.

"To me, it's really a systemic problem that we have so much corporate interest in all sectors of our health care, from the provider side to the health plan side," said Rep. Liz Reyer, DFL-Eagan.

UnitedHealthcare, which is the nation's largest health insurer, is the only for-profit HMO currently in Minnesota Medicaid (known as Medical Assistance) and a related program called MinnesotaCare.

"We are deeply disappointed this legislation was added as part of a closed-door process, without public input, and appears to be specifically targeting a local company that employs over 19,000 people in the state," UnitedHealthcare said in a statement to the Star Tribune.

At the end of March, the company was managing care for nearly 7.7 million Medicaid beneficiaries in states across the country. Managed care is the term for when private insurers provide benefits — in this case, as specified by government programs — through their networks of health care providers and systems for reviewing claims.

The company's enrollment total in Minnesota this month is about 31,724 people.

The Health Plan Partnership of Minnesota — a trade group representing for-profit HMOs — called the change discriminatory. The group said the decision is based on unsubstantiated beliefs about differences between for-profit and nonprofit HMOs.

"Creating laws based on myth, rather than evidence, and disrupting health coverage for more than 30,000 vulnerable Minnesotans sets a dangerous precedent," said Heidi Holste, executive director of the Health Plan Partnership of Minnesota, in a statement.

UnitedHealthcare's current contract ends this year, Reyer said, so there was no guarantee UnitedHealthcare would remain an option for beneficiaries in 2025.

Sen. Melissa Wiklund, DFL-Bloomington, called it "prudent" to restore the old approach because lawmakers in 2017 didn't sufficiently study the initial change to make sure care wouldn't be compromised. Wiklund also defended the process used by lawmakers, saying versions of the legislation were heard and debated at various points this spring.

"I don't think it's focused so much on United as the principle of making sure that our public programs are served by entities that are dedicated to that not-for-profit status," Wiklund said.

She added that for-profit companies "maybe don't place the same value on making sure people have access to high quality health care. They have another perspective that they need to keep in mind, and that's satisfying shareholders and stakeholders who are expecting to be able to maintain profitability."

Sen. Paul Utke, R-Park Rapids, argued for-profit HMOs have a proven track record that includes boosting competition.

"Our own Department of Human Services, they put out requests for proposals and they picked a for-profit HMO," he said.

Medicaid contracts in Minnesota have been a huge source of revenue over the years for health insurers. While there are years when some health plans lose money on the business, it generated record profits in 2022 .

At that time, the state Department of Human Services (DHS) said its managed care contracts accounted for about $8.7 billion in annual spending, with coverage provided for about 1.3 million residents. Those figures were somewhat inflated, however, by continuous-coverage requirements during the COVID public health emergency.

As of May, total managed care enrollment in the programs stands at about 1.1 million people, as the state has resumed coverage redeterminations for beneficiaries.

The previous ban stopped for-profit health insurers from obtaining HMO licenses in Minnesota, while the new ban blocks DHS from awarding contracts to these insurers. For-profit HMOs still can be licensed in Minnesota and compete for other types of business, such as customers in the fully-insured markets for groups and individuals.

Reyer said she worked for the change due to concerns the profit motive has too often pushed health insurers to wrongly deny or delay coverage for needed medical services. There are also concerns about nonprofits denying care, Reyer said, adding that she's "no apologist" for those health insurers.

"Let's face it, for-profit companies exist to legally maximize shareholder value," she said. "That's their requirement."

The new law also prevents for-profit HMOs from winning managed care contracts in the State Employee Group Insurance Program (SEGIP). Currently, the for-profit insurers Humana and Allina Health Aetna also have HMO licenses in Minnesota, although they don't have Medicaid contracts here.

Forty states plus the District of Columbia provide Medicaid coverage through managed care companies, but researchers say there's been a lack of transparency about how well this has worked for beneficiaries. This data void, in turn, has made it difficult to compare the relative quality of for-profit and nonprofit health plans in Medicaid, said Andy Schneider, a researcher with the Georgetown Center for Children and Families, during a University of Minnesota forum earlier this year.

A number of Minnesotans have submitted public comments saying they place a high value on coverage being provided by nonprofit HMOs, while believing these health plans are "more community engaged and responsive to local needs," the Minnesota Department of Health said in a report this year . But this study also found that "minimal data are available to shed light on whether differences exist between nonprofit and for-profit HMOs with regard to day-to-day operations, enrollee satisfaction and quality of care."

DHS says enrollees that need to change health plans for 2025 will receive a notice as part of the annual health plan selection. They do not need to take any action right now, the agency says. Enrollees typically have a choice between two or more managed care options, depending on their county of residence.

Christopher Snowbeck covers health insurers, including Minnetonka-based UnitedHealth Group, and the business of running hospitals and clinics. 

• The Alitos, the neighborhood clash and the upside-down flag
• Double-murder case: Man dismembered pregnant sister in Lakeville home
• Even a poor candidate can make a good president
• Workers at chef Ann Kim's Uptown restaurant seek to unionize

A robot will soon try to remove melted nuclear fuel from Japan's destroyed Fukushima reactor

Hawaii governor signs housing legislation aimed at helping local residents stay in islands, missile attacks damage a ship in the red sea off yemen's coast near previous houthi rebel assaults, insurance company sura withdraws from colombia's health system as government pushes for control.

• They're allowed in Minn. again, but for-profit HMOs face uphill climb Feb. 26, 2017
• Minnesota awarding contracts worth $5 billion to Medicaid health plans Oct. 7, 2022
• Interest rates could stay high 'indefinitely,' says Minneapolis Fed president Kashkari • Business
• Workers at chef Ann Kim's Uptown restaurant seek to unionize • Business
• Federal ammunition owner gets sweetened offer from Czech company, rejects latest from U.S. investors • Business
• For-profit HMOs will, again, be blocked from Minnesota's Medicaid program • Business
• UnitedHealth Group acquires large mental health group in Twin Cities • Business

© 2024 StarTribune. All rights reserved.

• Work & Careers
• Life & Arts

Become an FT subscriber

Try unlimited access Only $1 for 4 weeks

Then $75 per month. Complete digital access to quality FT journalism on any device. Cancel anytime during your trial.

• Global news & analysis
• Expert opinion
• Special features
• FirstFT newsletter
• Videos & Podcasts
• Android & iOS app
• FT Edit app
• 10 gift articles per month

Explore more offers.

Standard digital.

• FT Digital Edition

Premium Digital

Print + premium digital, ft professional, weekend print + standard digital, weekend print + premium digital.

Essential digital access to quality FT journalism on any device. Pay a year upfront and save 20%.

• Global news & analysis
• Exclusive FT analysis
• FT App on Android & iOS
• FirstFT: the day's biggest stories
• 20+ curated newsletters
• Follow topics & set alerts with myFT
• FT Videos & Podcasts
• 20 monthly gift articles to share
• Lex: FT's flagship investment column
• 15+ Premium newsletters by leading experts
• FT Digital Edition: our digitised print edition
• Weekday Print Edition
• Videos & Podcasts
• Premium newsletters
• 10 additional gift articles per month
• FT Weekend Print delivery
• Everything in Standard Digital
• Everything in Premium Digital

Complete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.

• 10 monthly gift articles to share
• Everything in Print
• Make and share highlights
• FT Workspace
• Markets data widget
• Subscription Manager
• Workflow integrations
• Occasional readers go free
• Volume discount

Terms & Conditions apply

Explore our full range of subscriptions.

Why the ft.

See why over a million readers pay to read the Financial Times.

International Edition