Is Profit Always Good?

Businesses need to make a profit in order to survive. But, are there things we try to make profits on, that are bad for your business?

Recently a friend of mine got a little behind on his AT&T cell phone bill. After trying to pay his bill on line and then with a customer service representative, he was finally referred to the store for payment. Once there he was told he had to pay in cash and that there would be a $5.00 “processing fee” for paying with cash.

We have all had to pay some unexpected fees in our lives, but I had never heard of someone charging a fee for paying cash. Usually there is a cash discount. As he told me this story I thought of someone in accounting saying, “If we force delinquent payers to pay by cash, we can charge a $5 fee for it and make $$$ this year of pure profit.”

The problem with this thinking is that they do not take into consideration the losses their company will have due to customers getting fed up with this type of mentality. It was that mentality that made me move from AT&T to T-Mobile years ago. And now with their merger I will have to move to Verizon since I have vowed never to give my money to AT&T again.

When the airlines started charging for your luggage in an effort to make more money, how did it make you feel? Were you excited to fly with them? Did you feel like you were better off flying with someone else? Southwest Airlines did not take the bait of charging like the rest and, as a result, saw an increase in their business. They also earned the loyalty of many people.

I remember watching the 2010 Tour de France when Andy Schleck dropped his chain on Stage 15. Alberto Contador chose that moment to make his move to gain the lead in the Tour. Contador claimed not to have seen Schleck’s misfortune and made some gesture of friendship in the next stage, however he never relinquished the time he gained in that move.

The thing that Bob Roll and others brought to light is that in professional cycling you rely on not only your team but others in the race to help you win. If your opponents feel you are unfair in the way you race, they will box you out and you will not be able to win.

If your customers feel you are making a profit at their expense, they will stop buying from you and will tell others to do the same. What may have gained you a small profit may have lost you future profits.

Now before you think I am saying you should not make a profit, let’s talk about what we can do to make a profit. I have a friend who ran a manufacturing plant. He is a master at profit and loss in organizations. He put his people to work to try to find ways they could work on themselves to make more profit in their organization. The result was they found ways to reduce waste. They reduced waste to the tune of $600,000 in a single year. As a result the plant was more profitable and everyone won.

Good profits come when we deliver what the customer needs at a reasonable markup. Your customers do not object to you making money in your business. After all if, you do not make money you cannot exist. So the key to making a good profit would be to find ways to reduce costs and increase service to the customer.

Similar Posts

One Comment

  1. “Good profits come when we deliver what the customer needs at a reasonable markup.” Who decides “reasonable,” Komrade? I’d rather let the market decide how to distribute Das Kapital.

Leave a Reply