Good Profit & Bad Profit

I meet a lot of business owners at Panera Bread.  When I walk in, the guy behind the counter (Dan) says “Hi, Chuck!”.   Feels a little like Cheers, when Norm used to walk in and everybody yelled “Norm!”.

I don’t wear a name tag but he and others there have gone out of their way to know who I am, the food I like, and the drinks I drink.  Their wi-fi is free, too, and they only ask that you respect the busy hours and not dominate a table for hours on end when they’re full.

Panera gets the concept of “good profit”. Good profit is margin you make on your customer that incentivizes them to want to come back so you can make more margin on them.  I’m perfectly happy going back to Panera as often as I can and letting them make more profit from me.

Bad profit is based on the concept of getting as much as you can up front, regardless of how it might affect your future relationship with your customer.   Bad profit is profit you get from a customer simply because you can.

For years Blockbuster imposed very high late fees from which they made huge profits.  Along came NetFlix and all of a sudden the public realized they had been had - late fees weren’t a necessary part of a movie rental model, they were just another way to make money quick.

Kinkos used to have “keys” that you used to make copies.  Grab a key, make some copies, go to the counter and pay for the count that showed up on the key.  And if you had a bad copy or two, you showed them that, they subtracted it from the total, and things were all square.  After FedEx bought them, they required that you either buy a Kinkos card or use your credit card.  This sounds okay, but there is huge “bad profit” in this model.

Someone buys one of their cards for $10, makes four copies and one of them is bad.   Will most people go to the counter and stand in line, and maybe have to argue, just to get 10 cents put back on their card?  No - they’ll shrug and walk out.  Will many people lose these cards or spend them down to $.25-$.75 and never use the rest?  Yes.  It’s similar to a gift card - a very large minority of all of them are never redeemed, and in some cases it’s one of the biggest profit centers for a company.   Is it a “small” thing?  Maybe, but it communicates a commitment to bad profit that will make Fedex perhaps millions a year in extra profit by preying on the busy-ness of their clients.  I avoid FedEx Kinkos as much as I can and find other places that don’t have a similar model

Airlines are full of bad profit these days.  They are in survival mode and while all companies are concerned for their future, that industry is counting its future in days, not months or years.  So there is little or no interest in developing customer loyalty; they are in the “get all you can as quick as you can” mode.   In the case of the airlines, bad profit has reached new levels.  Not only do they charge you for checking bags, they don’t let you know that they are going to charge twice - going both directions.  Little wonder that there is almost no loyalty left to any airlines.

Do you have bad profit built into your revenue model?  Is there anything that people have to pay for that sticks in their craw?   Don’t get it all up front.  Make people want to come back for more.  The old adage that it’s five times easier to keep an existing customer than it is to get a new one is important to remember.  It may be five times easier to get bad profit from an existing customer, too, but you’ll only likely get a chance to do it once.

If we hold customers hostage to big and quick profits just because we can, they will do their best to escape.  If we treat them like partners and work with them to make them want to come back, they will do their best to bring others into that partnership as well.

Let’s commit to good profit!  It will create even more good profit down the road.