Isn’t “any profit” good profit? Not at all. In fact, “bad profits” can absolutely destroy a business.
In his excellent book, The Ultimate Question*: Driving Good Profits and True Growth, Fred Reichheld explains (paraphrased) that bad profits are profis that come at the expense of customer satisfaction.
In other words, just because someone buys from your company, doesn’t necessarily mean they had a positive experience. And, if they didn’t (and/or consistently don’t) they could become what the author calls a “detractor.”
Not only will they defect at the first opportunity; they will relate their experience to others.
So, while a transaction may be profitable in the short run, in the long run, it can destroy that business.
In fact, according to Reichheld, a business’s sole assets and liabilities are its promoters and detractors. Thus, the “Net Promoter Score” (NPS) which is at the very heart of his book.
Since reading this Wall St. Journal Bestseller, I’ve taken even more notice of the “good profits/bad profits” concept…in the various businesses from which I buy, and with much disappointment. I need to make sure that — while I’m shaking my head at the way others are handling their businesses — I’m handling mine in order to create a positive NPS.
What about you? Are your profits good profits that are creating promoters or bad profits that are creating detractors? Some of each? You might want to pick up this book and give it a study.
* By the way, the “Ultimate Question” referenced in the title is, “Would you recommend us to a friend?”