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Increased Profit Margins Aren’t Always Good

The ultimate goal of every business is to make a profit. To do this, they spend a lot of time on cost cutting initiatives and increasing prices to improve their profit margins. But at some point, cost cutting can become counterproductive because it hinders growth and undermines performance in the long run. It turns out there are limits to how much — or how long — companies can improve their profit margins. Fortunately, a few straightforward rules of thumb can help managers avoid taking margin improvements too far, such as focusing on customers and competitors.

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