Profit squeeze

A profit squeeze is a decline in earnings over a period of time. There are many reasons for a profit squeeze, including the following:

  • Increased operating costs
  • Increased financing costs
  • Increased taxes
  • Increased competition
  • Changes in the regulatory environment
  • Changes in consumer preferences that lead to a decline in sales

A profit squeeze can damage a firm severely, so management needs to anticipate the underlying causes of a profit squeeze and shift the business into a different market segment or geographic area, or adopt some other innovation that allows the firm to continue earning its accustomed profit.