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?”
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Is a “bad profit” referring to just the sales and customer service aspect of business? Or is it also referring to the quality of products and/or services sold?
I think that’s an important question. For example, if I am an mp3 player (e.g.ipod) salesman, let’s say I do a great job of helping a customer find the perfect mp3 player and he/she is very happy with the buying process and recommends me to a friend. However, due to the planned obsolescence of nearly everything manufactured, the customer’s mp3 player, after only 2 years of average use, no longer holds a charge and he/she is forced to buy a new one.
This scenario is very representative of the monetary system, which requires ‘cyclical consumption’, or constant turnover in the marketplace.This translates into a natural propensity/need to create inferior products that break down quickly, for if very long lasting, durable and sustainable products were created, the market would suffer, for less people would have a need to repair or re-purchase a product.
So, if I achieve “good profits” because I get repeat business due to my excellent customer service, is it not ultimately a “bad profit” because of ‘cyclical consumption’? Or is “good profit” simply a strategy to perpetuate profit for long term viability in the marketplace regardless of whether or not the customer is ultimately getting ripped off?
Hi David,
If may, I think you’re waxing a bit too philosophical here. 🙂 Reichheld’s book has to do with the “total experience” so that is actually the answer to your question.
Regarding your thoughts about the monetary system and that it *requires* companies to develop inferior products that break down quickly, I believe you are generalizing and speaking about a different topic. We could go very deep into that as a discussion and, while many interesting case studies on both sides could probably be shared, I’m afraid that is beyond the scope (and goal) of this post.
Thank you for sharing,
Bob
P.S. In first sentence you spoke of the sale and customer “service” aspect. Reichheld really spoke more of the customer “experience.” While customer service is certainly part of the overall experience, it isn’t the whole thing. Just an fyi.
During my reflection of your blog, I got a great phone call from a client who landed in Anchorage and was greeted by the entire Grayline tour team at the airport and again most of the staff in the lobby of the hotel. It was Grayline’s first tour of the season, the hotel room had also been upgraded to the 14th floor. A trip of a life time celebrating 36 years of marriage and his retirement! These clients have been wonderful to plan for and it has been a delight to see all the parts coming perfectly together but I could not have special ordered the customer service they received. What a welcome surprise to get this call of elation the day of arrival to Alaska.
In a service business, I have gained and lost business by how vendors treat my clients. At times it doesn’t seem fair either way. I try to take care of my end of service but you can bet if I have client compaints from a vendor, I am on their tail to make it right. If I do not get satisfaction, it is the last time I use them. My business suffers if a third party does not give quality service and results in “bad profit” for me! My “good or bad profits” can come from hotels, airlines, cruise lines and excursion vendors. Surrounding myself with the best in the industry has been the only way for me to insolating myself from too many “bad profits”.
“Good profits” come to me in the form of a phone call like this one described because it’s something you cannot put a price tag on. This client was a referral so satisfaction is an added bonus. No matter how small or large the client, I work with the big picture in mind. It’s all about repeats and referrals. It cost less to keep a client than to get a new one.
Anxious to pick up this book, Bob
What a great story regarding your client and the Grayline Tour Team. Certainly speaks volumes abot them, as well about you.
Yes, you are correct that certain things that are seemingly “beyond your control” can actually reflect upon the overall experience a customer “feels” they have with you…even if it wasn’t exactly you with whom they had the experience. That’s a great reason for choosing to partner with other like-minded business people, as you have so obviously done. Even then, however, one can only control so much, as you and I have both discovered, I’m sure on more than one occasion. 🙂 I love your sentence, “Surrounding myself with the best in the industry has been the only way for me to insolating myself from too many ‘bad profits’.”
Repeats and referrals, indeed, are the measurement of the the types of profits – good or bad – a business is making. Thank you for sharing, Kris.
{Note from Bob: Check out Kris’ travel website at http://www.Cruise4Sail.com}
Sorry, Bob. I was drinking a lot of coffee at the time of my nonsensical comment.
LOL. It wasn’t non-sensical, David. There are companies/products out there where planned obsolescence is part of their strategy. It was more that it wasn’t quite on topic for this particular post. Thanks – Bob