On Executive Management: Good Profits vs. Bad Profits

10.02.13

 

Profit in business comes from repeat customers, customers that boast about your project or service, and that brings friends with them.

~ W. Edwards Deming

You must never actually cheat the customer, even if you can.  You must make her happy and satisfied so she will come back.

~ Alexander Turney Stewart

In my coaching, I teach the principle that the basic job of an executive is to generate sustainable results, and in a for-profit entity that generally means consistently superior profits.

There is a pressure and temptation when you are a CEO to do everything possible to generate short-term profitability.  You can be lulled into thinking you are successful just by looking at profitability from a strict accounting perspective.  However, you need to be careful that you are not actually destroying your ability to have sustainable profits over time.  As Mr. Deming says above, profit comes from repeat customers; customers that actually promote your business. Profits can also come from unhappy customers.  Those customers, unfortunately, will leave you as soon as they can and you have lost the sustainable profit that is really your job to generate.

I am currently reading, The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World, by Fred Reichheld.  In the book Mr. Reichheld discusses the concept of good profits vs. bad profits.  Good profits are simply earnings that are generated by building loyal customer relationships.  Bad profits, in contrast, are earned at the expense of customer relationships such as whenever a customer feels misled, mistreated, coerced, or abused.

Pause for a second and consider when you have felt misled or mistreated by a company.  Did you tell your friends about it and encourage them not to bring their business to them?  I know I have done that before.

Does your firm generate positive reviews or negative ones?  The cost of a negative review is far reaching.  The reward of a positive one is the same but on the opposite scale.

The simple guideline for building good profits is to just follow the Golden Rule – treat others like you would want to be treated.  As you do that, you will build a solid customer base that will generate superior, sustainable profits for years to come.

Choose to seek after good profits.  Good profits build great companies.

~ SLE

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